Symmetric and Asymmetric Information Models Living Together: Evidence from Brazilian Courts

Abstract

Priest & Klein (1984) is one of the most influential legal publications of all time. The authors states that the distribution of lawsuits is not the same as the distribution of disputes. Under efficiency and symmetry assumptions, plaintiffs and defendants rationally choose when to prosecute, ensuring that only highly unpredictable disputes becomes lawsuits. Priest and Klein model found support on several empirical tests across the years, but the tests are usually based on U.S. evidence. In this paper, we test the model once again using a unique data set from São Paulo's Court, in Brazil. We also analyze the cases behavior when the court offers waiver fees. Our evidence favors the Priest and Klein hypothesis on the no fee waiver scenario, considering both the win rates and other hypothesis derived from the original paper. However, an asymmetric information model seems more suitable for the fee waiver scenario, although we analyze very similar cases on both scenarios.