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1. Economics a. p()w c() p()w + c() i. p()= plaintiffs estimated belief of probability that they will win ii.

i. p()= defendants estimated belief of probability that will win iii. w= amount will win in judgment iv. c()= cost of litigation to party b. Lowest settlement amount will accept highest settlement offer that is willing to pay i. If so then mutually beneficial settlement is possible c. Diverging beliefs in likelihood wins between parties can narrow or eliminate settlement range i. Diverging beliefs can be due to difference in knowledge 1. Defenses, liability, etc. d. As risk aversion increases or the amount at stake increase (due to increasing size of judgment or cost of litigation) the likelihood of settlement increases e. 96% of civil cases and 98% of federal cases never make it to trial i. Represents settlement + dismissal rate ii. From 1996 so two problems 1. Prior to emergence of e-discovery 2. Impossible to include costs that would have occurred without settlement f. Some individuals may not settle despite being within range due to motives other than money driving suit i. Repeat players 1. A corporate may want to demonstrate a hard stance so that they are multiple s due not attempt to sue in hopes of receiving a settlement despite the fact that they have no intention to go to trial 2. Reputation of only settling at low range if at all ii. Behavioral results 1. Dont always behave rationally a. An individual may be driven by a moral or ethical stance and thus is looking to take case to trial regardless of likelihood that they will win i. E.g. gun violence, hazardous actions of corporation 2. Valuing of sunk costs g. Negative Value Suit i. wont go to trial but brings case regardless in hopes will settle ii. Reasons why would settle 1. Lacks information about the

a. Multiple s most of whom had high loss for which they could recover, and some whom had low loss for which they could recover. b. Recovery of low loss would not be enough to exceed cost of litigation. c. settles with all because cant differentiate between the two groups. 2. Even though would win it would be extremely costly and will settle for low amount as it is cheap for them to bring suit iii. Social desirability 1. Suit without merit is undesirable a. Distorts incentives i. Makes parties take excessive precautions ii. Discourages parties from engaging in activies for which benefits eceed the social costs iii. Generate costs and impose risk for no purpose 2. Suit with possible merit or where winning is certain may not be undesirable a. Private incentive diverges from the social b. Socially good for them to bring because of beneficial incentives it would create i. Compensates implicitly for the underdeterrence of low harms that would ordinarily occur due to litigation cots h. Sharing information prior to trial i. Strong incentive to share to foster settlement and improve its terms ii. Creates voluntary disclosure of information i. Discovery as a costly threat i. Expensive to obey due to significant time and resources required 1. Drives up litigation costs ii. Bourne by the side asked to comply 1. Opponent decides your litigation cost iii. Increase amount by which side is willing to settle for iv. A-symmetrical 1. Especially against corporate 2. Problems a. Settlement exceed value of case b. Increases frivolous suits j. Solutions to Asymettrical Use of Discovery i. Shifting of legal fees 1. Types

a. English Rule i. Loser at trial bears his opponents legal fees as well as his own ii. More likely to go to trial when is likely to win and vice versa 1. wont be required to pay their fees if they win 2. will have to pay s fees if they lose b. has to pay certain % of discovery if the trial verdict is < pre-trial settlement offer c. pays for discovery i. Simply shifts moral hard problem so that can impose uniltateral costs d. pays part of discovery (or is automatically required to disclose everything believes relevant) i. pays for anything beyond this amount e. Attorneys set up a fund to pay for discovery requests i. Each firm required to contibue certain amount of fees to fund which they use for future cases ii. Incentive to preserve and not run up costs 2. Magnifies the effects of differences of opinion about the trial outcome 3. This is all for risk neutral but since most individuals are risk averse the effect of fee shifting in the end might not be to increase trial 4. Leads parties to spend more on legal fees for two reasons a. Party will not necessarily have to pay the bill for legal services thus legal services are cheaper i. $1000 dollars of extra work when believe 70% likelihood of winning would only be viewed as costing $300 b. Increases the payoff from winning as fees are at stake in trial outcome i. Ex. 100,000 judgement but 80,000 in fees for each 1. 260,000 difference between winning and losing in English system a. 100,000 if wins but 160,000 if loses

2. 100,000 difference between winning and losing in American system k. Other variables i. Individual risk averse and corporation risk neutral 1. Dollars now for individual worth more than future thus accept smaller amount now than possible large later ii. Contingency fees impact settlement 1. may settle at amount lower than lawyer wants 2. Lawyer pays all litigation costs but only receives 1/3 of settlement a. Settlement must be 3l to break even iii. May offset each other l. Iqbal and Twombly i.

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