1. Economics a. p(π)w – c(π) ≤ p(∆)w + c(∆) i. p(π)= plaintiffs estimated belief of probability that they will win ii.

p(∆)= defendants estimated belief of probability that π will win iii. w= amount π will win in judgment iv. c(…)= cost of litigation to party b. Lowest settlement amount π will accept ≤ highest settlement offer that ∆ is willing to pay i. If so then mutually beneficial settlement is possible c. Diverging beliefs in likelihood π wins between parties can narrow or eliminate settlement range i. Diverging beliefs can be due to difference in knowledge 1. Defenses, liability, etc. d. As risk aversion increases or the amount at stake increase (due to increasing size of judgment or cost of litigation) the likelihood of settlement increases e. 96% of civil cases and 98% of federal cases never make it to trial i. Represents settlement + dismissal rate ii. From 1996 so two problems 1. Prior to emergence of e-discovery 2. Impossible to include costs that would have occurred without settlement f. Some individuals may not settle despite being within range due to motives other than money driving suit i. Repeat players 1. A corporate ∆ may want to demonstrate a hard stance so that they are multiple π’s due not attempt to sue in hopes of receiving a settlement despite the fact that they have no intention to go to trial 2. Reputation of only settling at low range if at all ii. Behavioral results 1. Don’t always behave rationally a. An individual π may be driven by a moral or ethical stance and thus is looking to take case to trial regardless of likelihood that they will win i. E.g. gun violence, hazardous actions of corporation 2. Valuing of sunk costs g. Negative Value Suit i. Π wont go to trial but brings case regardless in hopes ∆ will settle ii. Reasons why ∆ would settle 1. Lacks information about the π

Multiple π’s most of whom had high loss for which they could recover. Recovery of low loss would not be enough to exceed cost of litigation. Generate costs and impose risk for no purpose 2. Compensates implicitly for the underdeterrence of low harms that would ordinarily occur due to litigation cots h. A-symmetrical 1. Drives up litigation costs ii. Private incentive diverges from the social b. Increases frivolous suits j. c. Even though ∆ would win it would be extremely costly and π will settle for low amount as it is cheap for them to bring suit iii. Bourne by the side asked to comply 1. Suit with possible merit or where winning is certain may not be undesirable a. and some whom had low loss for which they could recover. Solutions to Asymettrical Use of Discovery i.a. Settlement exceed value of case b. 2. Types . Problems a. Increase amount by which side is willing to settle for iv. Discourages parties from engaging in activies for which benefits eceed the social costs iii. b. Social desirability 1. Strong incentive to share to foster settlement and improve its terms ii. Shifting of legal fees 1. Suit without merit is undesirable a. Opponent decides your litigation cost iii. Discovery as a costly threat i. Expensive to obey due to significant time and resources required 1. Creates voluntary disclosure of information i. Distorts incentives i. Especially against corporate ∆ß 2. Socially good for them to bring because of beneficial incentives it would create i. ∆ settles with all because cant differentiate between the two groups. Sharing information prior to trial i. Makes parties take excessive precautions ii.

000 if loses . π wont be required to pay their fees if they win 2. Incentive to preserve and not run up costs 2. 100. Increases the payoff from winning as fees are at stake in trial outcome i.000 difference between winning and losing in English system a. 260. Attorneys set up a fund to pay for discovery requests i.000 judgement but 80. 100. This is all for risk neutral but since most individuals are risk averse the effect of fee shifting in the end might not be to increase trial 4. π will have to pay ∆’s fees if they lose b. English Rule i.000 in fees for each 1. π has to pay certain % of discovery if the trial verdict is < pre-trial settlement offer c. More likely to go to trial when π is likely to win and vice versa 1. Magnifies the effects of differences of opinion about the trial outcome 3. ∆ pays part of discovery (or is automatically required to disclose everything believes relevant) i. $1000 dollars of extra work when believe 70% likelihood of winning would only be viewed as costing $300 b.a. Ex. π pays for anything beyond this amount e. Simply shifts moral hard problem so that can impose uniltateral costs d. π pays for discovery i. Loser at trial bears his opponents legal fees as well as his own ii. Party will not necessarily have to pay the bill for legal services thus legal services are cheaper i. Each firm required to contibue certain amount of fees to fund which they use for future cases ii.000 if π wins but 160. Leads parties to spend more on legal fees for two reasons a.

Lawyer pays all litigation costs but only receives 1/3 of settlement a. Dollars now for individual worth more than future thus accept smaller amount now than possible large later ii.000 difference between winning and losing in American system k.2. . Π may settle at amount lower than π lawyer wants 2. Settlement must be ≥ 3l to break even iii. 100. May offset each other l. Contingency fees impact settlement 1. Iqbal and Twombly i. Other variables i. Individual π risk averse and corporation ∆ risk neutral 1.


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