Stalling, Conﬂict, and Settlement
28 Pages Posted: 22 Feb 2018
Date Written: February 14, 2018
A widely-held assumption in the study of litigation and settlement is that if litigation is costly and settlement bargaining is costless, then in a complete-information setting, all disputes will settle with no need for litigation. This assumption is wrong. Even with complete information, perfectly rational parties may fail to settle out of court, and plaintiﬀs will spend resources to ﬁle suit, only for the parties thereafter to settle in court. This is because, outside of litigation, a strategy of stalling may be optimal for a defendant, and the plaintiﬀ’s only alternative is (costly) litigation. In this paper, I present a simple model demonstrating how stalling occurs, derive empirical predictions from the model, show how the model explains categories of litigation that existing models reliant on private information cannot explain (large numbers of debt-collection cases that are litigated, but no issues are contested), and discuss policy implications (including the limits of prejudgment interest as a tool to encourage settlement).
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