Litigation Cost Strategies, Settlement Offers and Game Theory

Abstract

"Starting with a simple economic model of the value of civil litigation from each side's perspective, this paper analyses a wide range of potential litigation cost strategies, settlement offers and negotiations, together with relevant applications and insights from game theory. Specific issues examined include: optimal settlement agreements, optimal settlement timing, optimal choice of lawyers; principal-agent problems aligning lawyer cost incentives; optimal client-lawyer contracts; 'Conditional Fee Agreements' (CFAs); success rules and size of success premia; the exploitation and mitigation of liquidity and bankruptcy constraints; impact of collateral, 'Security for Costs' and 'Freezing Orders'; optimal 'Part 36 Offers'; public and 'without prejudice' offers; fixed rate and state-contingent offers; the role of mediation and alternative dispute resolution (ADR); the effect of litigant group size, co-ordination and class actions; rationale for confidential no-liability settlement agreements; effects of legal aid; time-value to trial and optionality of news; the impact of the 'Law of Costs'; optimal trial cost applications and requests for 'leave to appeal'. Both familiar and paradoxical new results are confirmed by the analysis."