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Chilling, Settlement, and the Accuracy of the Legal Process

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  • Ezra Friedman
  • Abraham L. Wickelgren

Abstract

In this article, we ask the basic question: Is it necessarily the case that allowing or promoting settlement of lawsuits enhances social welfare? Our answer is not necessarily; there are circumstances where actually prohibiting settlement generates more social welfare than allowing it. Settlement can lower social welfare because it reduces the accuracy of legal outcomes. Reducing this accuracy reduces the ability of the law to deter harmful activity without chilling legitimate activity that might be mistaken for harmful activity. In some circumstances, the welfare loss from the chilling of legitimate activity can outweigh the gains from litigation cost savings, even if there are no restrictions on the damage rule. (JEL K00, K41, D82, C78) The Author 2008. Published by Oxford University Press on behalf of Yale University. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org, Oxford University Press.

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Bibliographic Info

Article provided by Oxford University Press in its journal The Journal of Law, Economics, & Organization.

Volume (Year): 26 (2010)
Issue (Month): 1 (April)
Pages: 144-157

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Handle: RePEc:oup:jleorg:v:26:y:2010:i:1:p:144-157

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Cited by:
  1. Koçkesen, Levent & Usman, Murat, 2012. "Litigation and settlement under judicial agency," International Review of Law and Economics, Elsevier, vol. 32(3), pages 300-308.

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