This study addresses the relationship between litigated disputes and disputes settled before or during litigation by presenting a model of the litigation process in which the determinants of settlement and litigation are solely economic, including the expected costs to parties of favorable or adverse decisions, the information that parties possess about the likelihood of success at trial, and the direct costs of litigation and settlement. The most important assumption of the model is that potential litigants form rational estimates of the likely decision, whether it is based on applicable legal precedent or judicial or jury bias. From this proposition, the model shows that the disputes selected for litigation (as opposed to settlement) constitute neither a random nor a representative sample of the set of all disputes.
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