In their 1984 article, Priest and Klein show that a simple divergent expectations model of the decision to litigate leads to a plaintiff success rate at trial that approaches 50 percent as the fraction of cases going to trial approaches zero. However, an extensive empirical literature has documented that plaintiffs win far fewer than half of their cases. As Priest and Klein observe, this conflict between the predictions of the model and the empirical literature may be attributable to violations in the data of the assumptions behind the simple model. Based on data from 3,529 cases, we find that "multimodal" case characteristics associated with violations of these assumptions cause plaintiff win rates to deviate from the 50-percent baseline in the manner that simple law-and-economics models would suggest. In other words, among cases that conform more closely to the assumptions underlying the simple divergent expectations model, the plaintiff win rate is closer to 50 percent. The 50 percent rule is actually a limiting implication of a selection effect that arises out of a simple divergent expectations model of the decision to litigate. In that model, each party estimates the quality of the plaintiff's claim with error, and the plaintiff settles when the defendant's offer is at least as large as the plaintiff's estimate of the value of her claim. Priest and Klein observe that cases selected for litigation are likely to be the difficult and uncertain ones-that is, the cases in which the true quality of the claim is close to the quality level needed for the plaintiff to win if the claim were to be tried-because the clear-cut cases will be more likely to settle before trial (or may never evolve into filed cases at all). The difficult and uncertain cases, in turn, are likely to be those that, on average, result in about half the victories going to one party and about half to the other.5 FEW results in the lawAlthough recent empirical work has validated the selection hypothesis, an extensive literature has documented that plaintiffs generally win far fewer than 50 percent of cases at the trial court or appellate level. This article investigates whether a "multimodal" approach to the selection of cases for litigation can reconcile the validity of the selection hypothesis in general with observed plaintiff win rates of less than 50 percent. The The theoretical motivation behind the 50 percent rule is as follows. If (C -S)/J is relatively high, say, 0.3,7 then cases that fail to settle will be those with P, > Pd, which will be disproportionately cases with Y' D-cases with the true quality close to the decision standard-because it is in those close cases that normal differences in estimation of quality across parties lead to large differences in the estimated probability of winning at trial. Put another way, if both parties agree that the plaintiff has a very small chance of winning, for example, Y' << D, then differences in parties' assessment of case quality are unlikely to be large enough to prevent the parties fr...

This paper develops extensive new indices of legal independence (central bank independence (CBI)) for new central banks (CBs) in 26 former socialist economies. The indices reveal that CB reform in the FSE during the 1990s has been quite ambitious. In spite of large price shocks, reformers in those countries chose to create CBs with levels of legal independence that are substantially higher, on average, than those of developed economies during the 1980s. The evidence in the paper shows that CBI is unrelated to inflation during the early stages of liberalization. But for sufficiently high and sustained levels of liberalization, and controlling for other variables, legal CBI and inflation are significantly and negatively related. These findings are consistent with the view that even high CBI cannot contain the initial powerful inflationary impact of price decontrols. But once the process of liberalization has gathered sufficient momentum legal independence becomes effective in reducing inflation. The paper $

2 Adolf A. Berle, Jr. and Gardiner C. Means, 2 The Modern Corporation and Private Property (CCH, 1932) (separation of ownership and control in large corporations). 11 This fundamental observation underlies not only the "liberal" theory of the corporation which stems from Berle and Means, see, for example, Melvin Aron Eisenberg, The Modernization of Corporate Law: An Essay for Bill Cary, 37 U Miami L Rev 187 (1983) (pointing to management abuse stemming from separation of ownership and control), but also the law and economics analysis of corporate law, see, for example, Frank H. Easterbrook, Managers' Discretion and Investors' Welfare: Theories and Evidence, 9 Del J Corp 540 (1984) (noting various devices in corporate law and finance to control actions by managers who do not serve shareholder interests). "' As we discuss at length below, see notes 53-79 and accompanying text, this problem is analyzed in economic terms under the rubric of "agency costs." [58:1

3115 U.S.C. § 78u-4(a) (3) (B) (v) (2000). '15 U.S.C. § 78u4(a) (3) (B) (iii) (I) (bb) (2000).