Strategic Behavior in Suit, Settlement, and Trial

Abstract

Previous studies of litigation have sidestepped the strategic element in the decisions to file suit, and to settle or go to trial. This article develops a model of strategic behavior in litigation, which reveals how information is exploited and how the litigants' strategies are interdependent. The model is analyzed to derive conditions on the parameters under which suit is filed, action is settled, and the action is tried. Further, it is applied to begin to study the question of whether there is excessive litigation in the U.S. legal system. It is found that in certain cases, the outcome of the litigation process does not satisfy private efficiency; that is, in some cases, even ignoring effects on the rest of society, the outcome is not efficient for the litigants.

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