Legal Disputes

Originally published in Encyclopedia of Law and Economics

While going to trial is always an option for settling a legal dispute, settlement prior to trial is the more common response. Settlement allows the parties to avoid the expenses entailed in going to trial, leaving both parties potentially better off than had they gone to trial. Such legal procedures as deposition and discovery tend to reduce divergence between disputants in the outcome they think a trial might produce. This similarity in expected outcomes weakens when the plaintiff is a political entity because those entities do not own their legal expenses. Political entities operate through budgetary appropriations. While a political entity cannot pocket legal expenses through settling a case, those expenses can be appropriated in different ways that nonetheless matter to the appropriator, and from reasons ranging from pursuing ideological goals to seeking higher political office. Almost surely, a rational defendant would rather face a private plaintiff than a political...

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