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Pre-Trial Bargaining and Litigation: The Search for Fairness and Efficiency

NCJ Number
Law & Society Review Volume: 34 Issue: 2 Dated: 2000 Pages: 431-456
Robert M. Howard; Joel T. Kaji; Richard E. Chard; Jeffrey Davis
Date Published
26 pages
This article analyzes a pre-trial bargaining model for both fairness and efficiency.
While efficiency is an important concern in pre-trial bargaining, fairness is a paramount concern not only of litigants and the legal community but also of society. Fairness under the law can be thought of as a process that fully compensates the plaintiff if and only if the defendant is at fault. For the defendant, fairness dictates that the compensation is limited to the true amount of the damage. If the process were not fair litigants would have little reason to litigate or accept settlement terms or trial outcomes. Citizens use and obey the outcomes of fair institutions. A pre-trial bargaining model is examined by showing how a minor re-conceptualization of uncertainty leads to significantly different outcomes. This minor change has a wide-ranging impact on the findings and on the flexibility of the model. It is shown how settlement demands, the probability of trial, and players’ utilities can vary monotonically and non-monotonically with litigation costs. There are fair equilibria that are inefficient; efficient equilibria that are unfair; equilibria that are neither fair nor efficient; and equilibria that are both fair and efficient. Conditions are identified that yield these equilibria as well as the behaviors and payoffs associated with them. The models suggest two strategies for increasing fairness and efficiency in the legal process. One is to decrease litigation costs to zero. The other is to raise litigation costs on both parties to moderate levels. The principle underlying the second principle is to give plaintiffs sufficient freedom to pursue compensation for their injuries, but to also give them disincentives for making outlandish settlement demands. In the model, these goals are optimally balanced when litigation costs are moderate, resulting in fair and efficient outcomes. 2 tables, 2 figures, 23 footnotes, 35 references, appendix