The Impact of Award Uncertainty on Settlement Negotiations

63 Pages Posted: 11 Jun 2013 Last revised: 7 Jun 2016

See all articles by Eric Cardella

Eric Cardella

Texas Tech University - Rawls College of Business

Carl Kitchens

Florida State University - Department of Economics

Date Written: June 6, 2016

Abstract

Legal disputes are often negotiated under the backdrop of an adjudicated award. While settlements are common, they are not universal. In this paper, we empirically explore how uncertainty in adjudicated awards impacts settlement negotiations. To do so, we develop an experimental design to test how increases in variance and positive skewness of the award distribution impact negotiations and settlement rates. We find increases in variance decrease settlement rates, while increases in skewness generally increases settlement rates. We also gather individual measures of risk aversion and prudence, and incorporate these measures into the analysis to test for heterogeneous treatment effects. Overall, our results suggest that highly variable adjudicated awards can contribute to the excess use of inefficient litigation, while more positively skewed awards can reduce the use of inefficient litigation.

Keywords: settlement, bargaining, eminent domain, risk, prudence

JEL Classification: C70, C91, K40

Suggested Citation

Cardella, Eric and Kitchens, Carl, The Impact of Award Uncertainty on Settlement Negotiations (June 6, 2016). Available at SSRN: https://ssrn.com/abstract=2274934 or http://dx.doi.org/10.2139/ssrn.2274934

Eric Cardella (Contact Author)

Texas Tech University - Rawls College of Business ( email )

Lubbock, TX 79409
United States

Carl Kitchens

Florida State University - Department of Economics ( email )

Tallahassee, FL 30306-2180
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
52
Abstract Views
381
rank
381,983
PlumX Metrics