Working Paper: NBER ID: w2161
Authors: Lucian Arye Bebchuk
Abstract: In many disputes, the expected value to the plaintiff from going to trial is negative, either because the chances of winning are small or because the litigation costs are large. While such a plaintiff would not go to trial, he might sue in the hope of extracting a settlement offer: the defendant might make such an offer if he is uncertain as to whether or not the expected value to the plaintiff of going to trial is negative. This paper seeks to identify the factors that determine: (i) whether a plaintiff who does not intend to go to trial will nonetheless succeed in extracting an offer; and (ii) how much will such a plaintiff succeed in extracting.
Keywords: settlement; litigation; informational asymmetry
JEL Codes: K41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| informational asymmetry (D82) | defendant's uncertainty about plaintiff's willingness to litigate (K41) |
| plaintiff's private information about expected value of litigation (v) (K41) | defendant's uncertainty about whether plaintiff will go to trial (K41) |
| defendant's uncertainty about whether plaintiff will go to trial (K41) | likelihood of settlement offers (K41) |
| plaintiff with NEV suit (K13) | defendant makes a settlement offer (K41) |
| defendant's uncertainty (D89) | settlement amounts offered to plaintiffs with PEV suits (K41) |
| defendant's belief about likelihood of trial based on plaintiff's type (K41) | decision to offer a settlement (K41) |