The Effect of Fee-Shifting Rules on Settlement Terms

Abstract:     
The large economic literature on fee-shifting rules has focused on the effects that they have on the likelihood of settlement and the incentive to sue. In contrast, this paper focuses on the rules' effect on the terms of settlement. The analysis demonstrates that fee-shifting rules influence the terms of settlement, and it further identifies the effect of each of the main fee-shifting rules on settlement terms. For each such rule, the analysis examines whether the rule will make settlement terms more favorable to the plaintiff or the defendant -- and also whether the rule will move these terms closer to or further away from the expected judgement.

JEL Classification: K41

working papers series