Settlements Under Unequal Access to Justice

Abstract

Settlements among parties are usually regarded as an efficient solution to a judicial dispute. However, frequent settlements between the rich and the poor can also mean unequal access to justice. We develop a model of settlements that takes wealth disparity of the parties into account, as the defendant and the victim must expend resources in court. Richer litigants can drive a harder bargain, and achieve more favorable settlement price. There has been surprisingly little evidence of this price effect in the empirical literature, likely due to the non-random selection of cases into court or private nature of settlements. We empirically show that this price effect exists by exploiting (1) the blurred line between civil and criminal litigation in Russia; (2) traffic collisions, where parties of different wealth are matched at random; and (3) the status of policemen, whose insider knowledge make them more powerful litigants, while lacking wealth for large settlements. We find that policemen settle more (less) often as defendants (victims) than their comparable wealth group,
in line with the model’s prediction. The existence of the price effect highlights
institutional failures, and is especially worrying for intentional offenses.

Keywords: access to justice, settlements, wealth inequality, litigation, structural, estimation

JEL Classification: K14, K15, K41