Edited by Jennifer H. Arlen
Chapter 13: Law and economics of settlement
In the United States, most tort disputes are resolved prior to trial. Eisenberg and Lanvers (2009) find that about 82 percent of tort cases filed in two federal district courts were settled prior to trial. The rates of settlement are even higher for state tort cases; Cohen (2009) finds that about 4 percent of all state tort cases were resolved by trial. Explaining why most, but not all, tort cases settle and analyzing the factors that contribute to settlement has attracted much attention in law and economics. Given that settlement is the primary mechanism through which tort law regulates behavior, analyzing the positive and normative features of settlement is immensely important. In particular, it is important to understand how the settlement process affects administrative costs, the ability of the tort system to regulate behavior, and how the tort system allocates risk. While settling disputes prior to trial clearly reduces the legal costs of already filed claims, how much it reduces those costs depends on how quickly settlement occurs. Furthermore, the possibility of settlement could induce more disputes either because it encourages people to file suit or because it encourages more torts in the first place.
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