Skip to content
Licensed Unlicensed Requires Authentication Published by De Gruyter May 20, 2015

Tipping the Scales – Settlement, Appeal and the Relevance of Judicial Ambition

  • Robin Christmann EMAIL logo
From the journal Review of Law & Economics


Judges become ambitious decision makers when they face appellate review. This paper applies a contract theoretic perspective to the behavior of self-interested trial judges in a two-level court system and analyzes how different judicial stereotypes affect contracting in “the shadow of” the court. Confronted with the factual ambiguity of a case, maximizing judges pursue an (privately) optimal strategy and tip the scales of the trial outcome. The model reveals that careerist judges will deliberately allow for a certain probability of judicial error in their decisions to pursue “self-advertisement” at the appeal court. Furthermore, the strongest fact-finding judge is tempted by in-trial settlements to evade the risk of appellate review, and does not foster contract verifiability to the desirable extent. Our implications put into perspective the function of appellate courts to promote court accuracy. Additionally, a judicial tendency to conclude lawsuits through in-court settlements may strain contract output.

JEL Classification: K12; K41; C72


The author is grateful for the support and advice of Michael Berlemann, Mariusz Golecki, Tobias Hlobil, Roland Kirstein, Baptiste Massenot and two anonymous referees. The author has also benefitted much from the suggestions made by conference participants of the German Law and Economics Association in Magdeburg, October 2012, of the Scottish Economic Society in Perth, April 2013, of the Workshop on the Economic Analysis of Litigation in Catania, June 2014, and of the Spanish Law and Economics Association in Malaga, June 2014.


Becker, G . 1968. “Crime and Punishment: An Economic Approach,” 76Journal of Political Economy169217.Search in Google Scholar

Bernardo, A. , E.Talley, and I.Welch. 2000. “A Theory of Legal Presumptions,” 16Journal of Law, Economics and Organization149.Search in Google Scholar

Bisso, J. C. , and A.Choi. 2008. “Optimal Agency Contracts: The Effects of Vicarious Liability and Judicial Error,” 28International Review of Law and Economics166174.Search in Google Scholar

Boyer, M. , and D.Porini. 2010. “Optimal Liability Sharing and Court Errors: An Exploratory Analysis.” Working Paper. University of Montreal.Search in Google Scholar

Christmann, R . 2014. “No Judge, No Job! Court Errors and the Contingent Labor Contract,” 38European Journal of Law and Economics409429.Search in Google Scholar

Cobbmediation. 2008. “Correlation of Mediator Gender to Settlement Rate.” (last updated: November 11, 2008).Search in Google Scholar

Demougin, D. , and C.Fluet. 2008. “Rules of Proof, Courts, and Incentives,” 39RAND Journal of Economics2040.Search in Google Scholar

Fernandez, P. , and G.Ponzetto. 2012. “Stare Decisis: Rhetoric and Substance,” 28Journal of Law, Economics and Organization313336.Search in Google Scholar

Fon, V. , and F.Parisi. 2003. “Litigation and the Evolution of Legal Remedies: A Dynamic Model,” 116Public Choice419433.Search in Google Scholar

Gennaioli, N . 2006. “Contracting in the Shadow of the Law.” Working Paper. Stockholm University.Search in Google Scholar

Gennaioli, N . 2013. “Optimal Contracts with Enforcement Risk,” 11Journal of the European Economic Association5982.Search in Google Scholar

Gennaioli, N. , and A.Shleifer. 2007. “The Evolution of Common Law,” 115Journal of Political Economy4368.Search in Google Scholar

Gennaioli, N. , and A.Shleifer. 2008. “Judicial Fact Discretion,” 37Journal of Legal Studies135.Search in Google Scholar

Grossmann, S. , and O.Hart. 1983. “An Analysis of the Principal-Agent Problem,” 51Econometrica745.Search in Google Scholar

Kaplow, L. , and S.Shavell. 1994. “Accuracy in the Determination of Liability,” 37Journal of Legal Studies115.Search in Google Scholar

Kaplow, L. , and S.Shavell. 1996. “Accuracy in the Assessment of Damages,” 39Journal of Law and Economics191210.Search in Google Scholar

Kirstein, R . 1998. Contractual Compliance in the Shadow of the Courts. An Economic Theory of Judicial Decision-Making (in German Language). Wiesbaden: Deutscher Universitätsverlag.Search in Google Scholar

Kirstein, R. , and D.Schmidtchen. 1997. “Judicial Detection Skill and Contractual Compliance,” 17International Review of Law and Economics509520.Search in Google Scholar

Levy, G . 2005. “Careerist Judges and the Appeals Process,” 36RAND Journal of Economics275297.Search in Google Scholar

Miceli, T. , and M.Cosgel. 1994. “Reputation and Judicial Decision-Making,” 23Journal of Economic Behavior and Organization3151.Search in Google Scholar

Mitusch, K. , and R.Strausz. 2005. “Mediation in Situations of Conflict and Limited Commitment,” 21Journal of Law, Economics, and Organization467500.Search in Google Scholar

Polinsky, M. , and S.Shavell. 2007. “The Theory of Public Enforcement of Law,” in M.Polinsky and S.Shavell, eds. Handbook of Law and Economics, vol 1, 403454. Oxford: North Holland.Search in Google Scholar

Posner, R . 1986. Economic Analysis of Law. Boston, MA: Little, Brown and Co.Search in Google Scholar

Posner, R . 1993. “What Do Judges and Justices Maximize?,” 3Supreme Court Economic Review141.Search in Google Scholar

Posner, R . 2005. “Judicial Behavior and Performance: An Economic Approach,” 32Florida State University Law Review12591280.Search in Google Scholar

Rasmusen, E . 1994. “Judicial Legitimacy as a Repeated Game,” 10Journal of Law, Economics and Organization6383.Search in Google Scholar

Rizolli, M. , and L.Stanca. 2012. “Judicial Errors and Crime Deterrence: Theory and Experimental Evidence,” 55Journal of Law and Economics311338.Search in Google Scholar

Salanié, B . 1999. The Economics of Contracts. Cambridge, MA: The MIT Press.Search in Google Scholar

Schneider, M . 2005. “Judicial Career Incentives and Court Performance: An Empirical Study of the German Labor Courts of Appeal,” 20European Journal of Law and Economics127144.Search in Google Scholar

Shapiro, S. , and R.Levy. 1995. “Judicial Incentives and Indeterminacy in Substantive Review of Administrative Decisions,” 44Duke Law Journal10511081.Search in Google Scholar

Shavell, S . 1995. “The Appeals Process as a Means of Error Correction,” 24The Journal of Legal Studies379426.Search in Google Scholar

Shavell, S . 2006. “On the Writing and the Interpretation of Contracts,” 22The Journal of Law, Economics and Organization289314.Search in Google Scholar

Shepsle, K . 1992. “Congress Is a ‘They’, Not an ‘It’: Legislative Intent as Oxymoron,” 12International Review of Law and Economics239256.Search in Google Scholar

Tirole, J . 1999. “Incomplete Contracts: Where Do We Stand?,” 67Econometrica741781.Search in Google Scholar

Tullock, G . 1994. “Court Errors,” 1European Journal of Law and Economics924.Search in Google Scholar

Usman, M . 2002. “Verifiability and Contract Enforcement: A Model with Judicial Moral Hazard,” 18Journal of Law, Economics and Organization6794.Search in Google Scholar

Zhu, T. , and J.Zhang. 2000. “Verifiability, Incomplete Contracts and Dispute Resolution,” 9European Journal of Law and Economics281290.Search in Google Scholar

Published Online: 2015-05-20
Published in Print: 2015-07-01

©2015 by De Gruyter

Downloaded on 29.9.2023 from
Scroll to top button