Chilling, Settlement, and the Accuracy of the Legal Process

Posted: 22 Feb 2010

See all articles by Ezra Friedman

Ezra Friedman

Northwestern University - Pritzker School of Law

Abraham L. Wickelgren

University of Texas at Austin - School of Law; University of Texas at Austin - Center for Law, Business, and Economics

Date Written: April 2010

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 Classification: JEL K00, K41, D82, C78

Suggested Citation

Friedman, Ezra and Wickelgren, Abraham L., Chilling, Settlement, and the Accuracy of the Legal Process (April 2010). The Journal of Law, Economics, & Organization, Vol. 26, Issue 1, pp. 144-157, 2010. Available at SSRN: https://ssrn.com/abstract=1555537 or http://dx.doi.org/10.1093/jleo/ewn018

Ezra Friedman (Contact Author)

Northwestern University - Pritzker School of Law ( email )

375 E. Chicago Ave
Chicago, IL 60611
United States

Abraham L. Wickelgren

University of Texas at Austin - School of Law ( email )

727 East Dean Keeton Street
Austin, TX 78705
United States

University of Texas at Austin - Center for Law, Business, and Economics

Austin, TX 78712
United States

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