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The Effect of Offer-of-Settlement Rules on the Terms of Settlement

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Author Info
Bebchuk, Lucian Arye
Chang, Howard F

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Abstract

Under an "offer-of-settlement" rule, a party to a lawsuit may make a special offer to settle with the other party, such that if the other party rejects this offer, then this offer becomes part of the record in the case and may affect the allocation of litigation costs. Specifically, if the parties litigate to judgment, then the allocation of litigation costs may depend on how the judgment compares with the special offer. This paper develops a model of bargaining under offer-of-settlement rules that can be used to analyze the effect that such rules have on the terms of settlement. The analysis first sets forth a general principle that identifies the settlement amount under any such rule. We then apply this principle to derive the settlement terms under the most important of these rules, and we identify a large set of seemingly different rules that produce identical settlements. Copyright 1999 by the University of Chicago.

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Publisher Info
Article provided by University of Chicago Press in its journal Journal of Legal Studies.

Volume (Year): 28 (1999)
Issue (Month): 2 (June)
Pages: 489-513
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Handle: RePEc:ucp:jlstud:v:28:y:1999:i:2:p:489-513

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Kathryn E. Spier, 1994. "Pretrial Bargaining and the Design of Fee-Shifting Rules," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 197-214, Summer. [Downloadable!] (restricted)
  2. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January. [Downloadable!] (restricted)
  3. Chung, Tai-Yeong, 1996. "Settlement of Litigation under Rule 68: An Economic Analysis," Journal of Legal Studies, University of Chicago Press, vol. 25(1), pages 261-86, January.
  4. Lucian Arye Bebchuk, 1984. "Litigation and Settlement under Imperfect Information," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 404-415, Autumn. [Downloadable!] (restricted)
  5. Ken Binmore & Ariel Rubinstein & Asher Wolinsky, 1986. "The Nash Bargaining Solution in Economic Modelling," RAND Journal of Economics, The RAND Corporation, vol. 17(2), pages 176-188, Summer. [Downloadable!] (restricted)
  6. Anderson, David A, 1994. "Improving Settlement Devices: Rule 68 and Beyond," Journal of Legal Studies, University of Chicago Press, vol. 23(1), pages 225-46, January.
  7. Jennifer F. Reinganum & Louise L. Wilde, 1986. "Settlement, Litigation, and the Allocation of Litigation Costs," RAND Journal of Economics, The RAND Corporation, vol. 17(4), pages 557-566, Winter. [Downloadable!] (restricted)
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  1. Jean O. Lanjouw & Josh Lerner, 1996. "Preliminary Injunctive Relief: Theory and Evidence from Patent Litigation," NBER Working Papers 5689, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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