No Free Lunch: How Settlement Can Reduce the Legal System's Ability to Induce Efficient Behavior


While there is widespread agreement that it is better for cases to settle than go to trial, the arguments in favor of settlement have typically overlooked how settlement affects one of the most important functions of the legal system: influencing the behavior that gives rise to lawsuits. This essay argues that, in some cases, settlement can impair the ability of the legal system to deter harmful behavior without chilling desirable behavior. Where it exists, this effect is a fundamental property of settlement in that there is no way to change other legal rules to eliminate it. Because settlements also have important benefits, such as the saving of legal costs, this essay does not argue for any across the board prohibition of settlement. Rather, it suggests that judges should be more circumspect about encouraging settlements and that there may even be situations where some restrictions on settlement are warranted.


Courts | Economics | Judges | Law | Litigation

Date of this Version

August 2003