Chilling, settlement, and the accuracy of the legal process

Ezra Friedman, Abraham L. Wickelgren

Research output: Contribution to journalArticlepeer-review

9 Scopus citations

Abstract

In this article, we ask the basic question: Is it necessarily the case that allowing or promoting settlement of lawsuits enhances social welfare? Our answer is not necessarily; there are circumstances where actually prohibiting settlement generates more social welfare than allowing it. Settlement can lower social welfare because it reduces the accuracy of legal outcomes. Reducing this accuracy reduces the ability of the law to deter harmful activity without chilling legitimate activity that might be mistaken for harmful activity. In some circumstances, the welfare loss from the chilling of legitimate activity can outweigh the gains from litigation cost savings, even if there are no restrictions on the damage rule. (JEL K00, K41, D82, C78) The Author 2008. Published by Oxford University Press on behalf of Yale University.

Original languageEnglish (US)
Pages (from-to)144-157
Number of pages14
JournalJournal of Law, Economics, and Organization
Volume26
Issue number1
DOIs
StatePublished - Apr 1 2010

ASJC Scopus subject areas

  • Economics and Econometrics
  • Organizational Behavior and Human Resource Management
  • Law

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