Introduction

Economists are interested in the resolution of legal disputes for several rea­sons. First, the manner in which parties resolve their disputes (whether by settlement or trial) has an effect on the cost of operating the legal system.

This entry examines the economic analysis of the way legal disputes are resolved. It begins by examining the settlement-trial decision. The analysis shows that settlement will be the predominant outcome given the mutual gain to the parties from avoiding litigation costs. In order to explain the existence of trials, researchers have proposed the existence of differing perceptions or asymmetric information by the parties regarding the outcome of a trial.

The resulting models offer insights into various methods for controlling the costs of litigation. In this context, we examine the practice of pre-trial discovery and cost shifting under the English Rule and Rule 68 of the Federal Rules of Civil Procedure. The discussion then turns to the question of whether there is too much litigation from a social perspective, and to various explana­tions for the success of frivolous lawsuits, or suits with little or no social value. Finally, the entry considers the question of the selection of cases that go to trial. This issue is relevant for researchers seeking to draw inferences about the population of disputes from trial data, and also for the question of whether the law evolves in the direction of efficiency without the conscious help of judges and litigants.