A risk-neutral plaintiff sues a risk-neutral defendant for damages that are normalized to one. The defendant knows whether she is liable or not, but the plaintiff does not. We ask what are the settlement procedures and fee-shifting rules (which, together, we call a mechanism) that minimize the...

We solve for the settlement mechanism and fee-shifting rule that minimize the likelihood of litigation yet maintain optimal deterrence under the assumption that the main dispute between the parties is about the defendant's liability. The solution turns out to be surprisingly simple: let the...