Maybe There's No Bias in the Selection of Disputes for Litigation
Forthcoming, Journal of Institutional and Theoretical Economics
29 Pages Posted: 29 Jun 2017 Last revised: 19 Sep 2017
Date Written: September 19, 2017
New York “closing statement” data provide unique insight into settlement and selection. The distributions of settlements and adjudicated damages are remarkably similar, and the average settlement is very close to the average judgment. One interpretation is that selection effects may be small or non-existent. Because existing litigation models all predict selection bias, we develop a simple, no-selection-bias model that is consistent with the data. Nevertheless, we show that the data can also be explained by generalized versions of screening, signaling, and Priest-Klein models.
Keywords: Litigation; Settlement; Selection; Priest-Klein; Asymmetric Information; Inconsistent Priors
JEL Classification: K41
Suggested Citation: Suggested Citation