1The Incentive to Take Care and The Deterrence of A Nuisance Suit

This paper investigates three important issues in law and economics: the incentive to take care in the presence of nuisance suits, the incentive to bring about a nuisance suit by a plaintiff, and how to resolve a legal dispute. For this, we consider a three-stage game between a plaintiff and a defendant. We identify two types of equilibria one of which prevails, depending on the parameter values. The main results show tha: generally the equilibrium level of care differs from the socially optimal care level; nuisance suits are not ful y deterred; in some cases, litigation cannot be avoided because of the informational asymmetry. Key words:Incentive to take care, Nuisance suits, litigation, Informational asymmetry