Abstract

http://ssrn.com/abstract=86752
 
 

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


Lucian A. Bebchuk


Harvard Law School; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR) and European Corporate Governance Institute (ECGI)

Howard F. Chang


University of Pennsylvania Law School

1999

Journal of Legal Studies, Vol. 28, pp. 489-513, 1999
Stanford Law and Economics Olin Working Paper No. 164

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 (unlike an ordinary 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. Our results have both positive and normative implications.

Number of Pages in PDF File: 24

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Date posted: May 13, 1998 ; Last revised: May 7, 2009

Suggested Citation

Bebchuk, Lucian A. and Chang, Howard F., The Effect of offer-of-Settlement Rules on the Terms of Settlement (1999). Journal of Legal Studies, Vol. 28, pp. 489-513, 1999; Stanford Law and Economics Olin Working Paper No. 164. Available at SSRN: http://ssrn.com/abstract=86752 or http://dx.doi.org/10.2139/ssrn.86752

Contact Information

Lucian A. Bebchuk (Contact Author)
Harvard Law School ( email )
Cambridge, MA 02138
United States
617-495-3138 (Phone)
617-812-0554 (Fax)
HOME PAGE: http://www.law.harvard.edu/faculty/bebchuk/
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Centre for Economic Policy Research (CEPR) and European Corporate Governance Institute (ECGI)
Howard F. Chang
University of Pennsylvania Law School ( email )
3501 Sansom Street
Philadelphia, PA 19104
United States
215-573-8296 (Phone)
215-573-2025 (Fax)
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