ODEC 9035 - Economic Analysis of Litigation and Settlement

This seminar will introduce students to the fundamental features of litigation and settlement, using the methodological tools of economic analysis. The structure of the course is twofold, reflecting a distinction between substance and form. On the substantive side, we will explore a set of central questions: How do procedural rules influence behavior? What effect do they have on compliance with the law? What costs do they generate? How do they shape the decision to litigate or settle? And how do they impact overall social welfare? At the same time, we will examine the formal models used to analyze these questions. This involves understanding how the models are constructed, identifying and critically evaluating their underlying assumptions, and assessing the analytical tools they employ. We will also compare the predictions of theoretical models with empirical findings and experimental results, with the goal of understanding both the strengths and the limitations of economic modeling in the context of legal procedure.

Alon KLEMENT

Séminaire

English

None

Autumn 2025-2026

Class 1: The Basic Model of Litigation and Settlement Richard A. Posner. An Economic Approach to Legal Procedure and Judicial Administration, 2 J. LEGAL STUD. 399 (1973). Think • Focus on parts IV and V of the paper (pp. 417-441). What is the necessary condition for settlement? Why is this condition not sufficient? • Are settlement and adjudication perfect substitutes? • About 95% of cases that are filed do not end in trial. What percentage of the disputes people have is settled (give your rough intuition, but try to support it with economic arguments)? Class 2: Fee Shifting Rules Steve Shavell, Suit, Settlement, and Trial: A Theoretical Analysis Under Alternative Methods for the Allocation of Legal Costs, 11 J. LEGAL STUD. 55 (1982). Think • What are the effects of the British Rule when litigants have limited resources? Why is fee shifting a limited mechanism for influencing litigation and settlement decisions? Can you offer ways to improve this device? • What would be the effects of the British rule on the parties' expenditures on litigation? Class 3: Social versus Private Incentives to Litigate and Settle Steven Shavell, The Fundamental Divergence Between the Private and the Social Motive to use the Legal System, 26 J. LEGAL STUD. 575 (1997). Think • Compare Shavell's paper with Posner (1973). In what way does Shavell's analysis enhance Posner's arguments? • Many writers claim that there is a value to process. What is this value? Do you think they refer to a private value, a social value, or both? Class 4: Negative Expected Value Suits David Rosenberg & Steven Shavell, A Model in which Suits are Brought for their Nuisance Value, 5 INT. REV. LAW AND ECONOMICS 3 (1985) Lucian A. Bebchuk, A New Theory Concerning the Credibility and Success of Threats to Sue, 25 J. LEGAL STUD. 1 (1996). Think • "Bebchuk's paper is actually a more general version of Shavell and Rosenberg's". Is that true? What phenomenon does each paper try to explain? • What limitation of the backward induction analysis do you notice when you read Bebchuk's paper? How would you test his model? Class 5: Attorneys and Clients Geoffrey P. Miller, Some Agency Problems in Settlement, 16 J. LEGAL STUD. 189 (1987) Think • What types of agency costs are not discussed in the paper? • Do you agree with Miller's criteria for evaluating the welfare implications of the different fee structures? • Claimants are not allowed to sell their claims to others (including their lawyers). why? Assuming they were allowed, do you thing such sales would have taken place? Class 6: Improving Procedure: Alternative Approaches Daphna Kapeliuk & Alon Klement, Changing the Litigation Game: An Ex Ante Perspective on Contractualized Procedures, 91 Tex. L. Rev. 1475 (2013). Ronen Avraham & William H.J. Hubbard, Civil Procedure as the Regulation of Externalities, 89 U. Chicago L. Rev. 1 (2022) Think • Can markets in procedural entitlements solve the problem o litigation externalities? • What are the problems of negotiating procedural rules, ex ante?