Malice in pretrial negotiations

Abstract

This is the first paper to incorporate two-sided malice into a complete information model of pretrial bargaining. Each party obtains malice utility from financial losses incurred by the other: psychological dissatisfaction caused to the other party by depriving them of a resolution also contributes to a utility from malice in every period in which there is no resolution. Introducing this feature in a complete information model a la Spier (1992) where a trial date is exogenously set and a plaintiff makes offers to a defendant in every period before the trial, and where there are both bargaining costs before the trial and litigation costs during the actual trial, I find that (i) some cases are never settled, but proceed to trial, (ii) settlement occurs either immediately or on the courthouse steps. This is in line with empirics, and happens without any form of private information or divergent expectations, contrary to traditional explanations. Since there is ample experimental evidence of malice as a motive, and since it is even more relevant between disputing parties, the new explanation that the paper suggests for both settlement failure and the timing of settlements is likely significant. The results are robust to a change in bargaining protocol to alternate offers, to the trial date being endogenous in an infinite horizon model, and to the introduction of costly discovery and uncertainty of plaintiff victory.