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Chilling, Settlement, and the Accuracy of the Legal Process

Author

Listed:
  • 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.

Suggested Citation

  • Ezra Friedman & Abraham L. Wickelgren, 2010. "Chilling, Settlement, and the Accuracy of the Legal Process," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 26(1), pages 144-157, April.
    • Handle: RePEc:oup:jleorg:v:26:y:2010:i:1:p:144-157
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    File URL: http://hdl.handle.net/10.1093/jleo/ewn018
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    Citations

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    Cited by:

    1. Giorgio Rampa & Margherita Saraceno, 2018. "Accuracy and Costs of Dispute Resolution with Heterogeneous Consumers. A Conjectural Approach to Mass Litigation," DEM Working Papers Series 155, University of Pavia, Department of Economics and Management.
    2. Ayouni, Mehdi & Friehe, Tim & Gabuthy, Yannick, 2020. "Opting for the English rule: On the contractual re-allocation of legal fees," International Review of Law and Economics, Elsevier, vol. 63(C).
    3. Koçkesen, Levent & Usman, Murat, 2012. "Litigation and settlement under judicial agency," International Review of Law and Economics, Elsevier, vol. 32(3), pages 300-308.
    4. Scott A. Baker & Anup Malani, 2011. "Does Accuracy Improve the Information Value of Trials?," NBER Working Papers 17036, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • K00 - Law and Economics - - General - - - General (including Data Sources and Description)
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory

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