Maybe There Is No Bias in the Selection of Disputes for Litigation

Published in: Journal of Institutional and Theoretical Economics (JITE) [Epub December 2017]. doi: 10.1628/093245618X15115174056060

by Eric Helland, Daniel Marc Klerman, Yoon-Ho Alex Lee

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New York closing-statement data provide unique insight into settlement and selection. The distributions of settlements and adjudicated damages are remarkably similar, and the average settlement is very close to the average judgment. One interpretation is that selection effects may be small or nonexistent. Because existing litigation models all predict selection bias, we develop a simple, no-selection-bias model that is consistent with the data. Nevertheless, we show that the data can also be explained by generalized versions of screening, signaling, and Priest-Klein models.

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