Litigation seems to be a Pareto-ineffcient outcome of pretrial bargaining; however, this paper shows that litigation can be the outcome of rational behavior by a litigant and her attorney. If the attorney has more information than his client concerning the characteristics of the lawsuit, the...

The purpose of this chapter is to survey the academic literature on the economics of litigation and to synthesize its main themes. The chapter begins by introducing the basic economic framework for studying litigation and out-of-court settlement. One set of issues addressed is positive (or...

We consider a model of litigation in which some defendants have insufficient assets to pay a judgment at trial. Because the defendant's assets are not observable, this serves as a source of asymmetric information which leads to trials in the equilibrium of the model. Unlike many other types of...

We model the settlement of a legal dispute where the trial outcome depends on the behavior of a strategically motivated judge. We consider a standard asymmetric information model where the uninformed defendant makes a take it or leave it offer. If the case goes to trial, the judge decides how...

A settlement is an agreement between parties to a dispute. In everyday parlance and in academic scholarship, settlement is juxtaposed to trial or some other method of dispute resolution in which a third-party factfinder ultimately picks a winner and announces a score. The “trial versus...

Two risk-averse litigants with different subjective beliefs negotiate in the shadow of a pending trial. Through contingent contracts, the litigants can mitigate risk and/or speculate on the trial outcome. The opportunity for contingent contracting decreases the settlement rate and increases the...

Litigation seems to be a Pareto-ineffcient outcome of pretrial bargaining; however, this paper shows that litigation can be the outcome of rational behavior by a litigant and her attorney. If the attorney has more information than his client concerning the characteristics of the lawsuit, the...

The appellate review system is intended to serve as an efficient remedy for imperfect judicial decision making. However, it can fulfill this task only when appeals are filed solely due to bad verdicts and are ex-ante unpredictable based on factors that are exogenous to the judge. Using data from...

This chapter presents a strategic model of incentives for care and litigation under asymmetric information and self-serving bias, and studies the effects of damage caps. Our main findings are as follows. First, our results suggest that the defendant's bias decreases his expenditures on accident...

We provide a simple framework in which the level of adversarial bias is endogenously determined in a litigation process. Using this model, we study the effect of using a court-appointed expert on the level of adversarial bias and the average error rates, and find an interesting trade-off:...