Title

The Economics of the Litigation Process and the Division of the Settlement Surplus: A Game-Theoretic Approach

Document Type

Article

Journal/Book Title/Conference

Journal of Legal Economics

Volume

6

Issue

3

Publication Date

1996

First Page

1

Last Page

10

Abstract

A unique feature of much personal injury litigation is that it effectively pits an individual plaintiff against a de facto insurance company defendant. Discussed in this article is how possible differences concerning risk, liquidity, and the time value of money between these two parties affect the probability of settlement and the distribution of gains from settlement. The analysis should be of value to the practicing trial attorney by providing a conceptual framework for forming bargaining strategies. The attorney can at least subjectively assess the relative risk preferences, liquidity constraints, and time value of money of his client and that of the opposing party and factor this into the litigation strategy. For forensic economists, the analysis should be of value in providing counsel to principals in litigation and their lawyers and in offering a conceptual framework for analyzing the legal process.

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