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Suit and Settlement vs. Trial: A Theoretical Analysis under Alternative Methods for the Allocation of Legal Costs

Listed author(s):
  • Steven Shavell

Will a party who believes that he has a legally admissible claim for money damages decide to bring suit? if so, will he subsequently settle with the opposing party or will he go ahead to trial? These questions are analyzed under four methods for allocating legal costs, namely, under the American system, whereby each side bears its own costs; under the "indemnity" or British system, whereby the losing side bears all costs; under the system favoring the plaintiff whereby the plaintiff pays only his own costs if he loses and nothing otherwise; and under the system favor the defendant, whereby the defendant pays only his own costs if he loses and nothing otherwise. Following the analysis, two brief illustrations are considered and comments are made on the relative social desirability of the methods of allocating legal costs.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0662.

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Date of creation: Apr 1981
Publication status: published as Shavell, Steven. "Suit and Settlement vs. Trial: A Theoretical Analysis under Alternative Methods for the Allocation of Legal Costs." Journal of Legal Studies, Vol. 11, No. 1 (January 1982) pp. 55-81.
Handle: RePEc:nbr:nberwo:0662
Note: LE
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