218. B. Hay and K. Spier, Litigation and Settlement, 11/97; subsequently published in The New Palgrave Dictionary of Economics and the Law, Peter Newman (ed.), (New York: Stockton Press, 1998), Vol. 3, P-Z, 442-451.
Abstract: Perhaps the most widely discussed topic in the economics of legal procedure is the relation between litigation and settlement. This paper offers a critical introduction to the voluminous economic literature on this topic. This literature considers questions such as why the parties to a dispute choose to go to court, rather than settling the matter privately; what determines the likelihood that a case will settle, and the terms on which it is settled; how various legal instruments or rules influence parties' decision to settle or go to court; and how the choice between settlement and litigation affects social welfare. These issues have turned out to be surprisingly complex, and continue to receive extensive attention as commentators employ increasingly refined models to examine the many nuances of the problem. The present paper attempts to set forth in a concise and informal manner the major results of this work and some directions for future research.