JUDICIAL DETECTION SKILL AND CONTRACTUAL COMPLIANCE

Mutually beneficial agreements might fail if the parties fear contract ual opportunism. Litigation is supposed to be a remedy, but it gives s cope: for another kind of opportunistic behavior, which we call litiga tional opportunism: Even known that the opponent has fulfilled his obl igations, a party might bring suit. We introduce a new concept, called judicial detection skill, and show that positive judicial detection s kill is a prerequisite if the court system is to deter opportunistic s uits and simultaneously induce bilateral contractual compliance, The t raditional literature on litigation either assumes judges with zero de tection skill, or simply neglects that opportunistic suits might be su ccessful. We prove that those models are unable to provide an answer t o the question of how to prevent both types of opportunism simultaneou sly. (C) 1997 by Elsevier Science Inc.