Skip to main content
SpringerLink
Log in

Litigation and the timing of settlement: evidence from commercial disputes

European Journal of Law and Economics volume 44, pages 287–319 (2017)Cite this article

Abstract

Although an overwhelming proportion of all legal disputes end in settlement, the determinants of the timing of settlement remain empirically underexplored. We draw on a novel dataset on the duration of commercial disputes in Slovenia to study how the timing of settlement is shaped by the stages and features of the litigation process. Using competing risk regression analysis, we find that events such as court-annexed mediation and the first court session, which enable the disputing parties to refine their respective expectations about the case outcome, in general reduce case duration to settlement. The magnitude of the respective effects, however, varies with time. Completion of subsequent court sessions, in contrast, does not affect the time to settlement. Judicial workload affects the timing of settlement indirectly, via the effect on the timing of the first court session. We also examine the effect of other case and party characteristics.

This is a preview of subscription content, access via your institution.

Access options

Buy single article

Instant access to the full article PDF.

USD 39.95

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Fig. 1
Fig. 2
Fig. 3
Fig. 4

Notes

  1. For an overview of the literature on litigation, see Cooter and Rubinfeld (1989), Farmer and Pecorino (1996), Hay and Spier (1998), Kaplow and Shavell (2002: Ch. 5), Shavell (2004: Ch. 17–18), Spier (2007), and Daughety and Reinganum (2012).

  2. See Grajzl et al. (2016: Sec. 2) for a discussion of exceptions.

  3. See Galič (2014) for a critical discussion of the restrictions on late factual allegations and evidence in Slovenia.

  4. Our access to the data was restricted in that we were not allowed access to the actual court case files. Instead, the information from the court case files that we had been approved to collect was recorded for us by court personnel. This practice ensured the preservation of anonymity of disputing parties during the process of dataset assembly. In the dataset made available to us, courts and disputing parties are identifiable as nameless codes.

  5. The precise number of commercial cases for compensation of damages filed during this time period is unclear. We learned that, for record-keeping purposes, cases in Slovenian courts are sorted under alternative categories in a haphazard way. Any administrative errors of this type, however, should not affect the representativeness of our sample.

  6. The proposed categorization of different modes of case disposition into the broad notions of settlement and resolution through court judgment is consistent with the existing approaches in the empirical literature on modes of case disposition (see, e.g., Galanter 2004; Hadfield 2004; Dimitrova-Grajzl et al. 2014).

  7. We also do not know the precise timing of appointment of a court expert. This lack of information, however, should not affect our analysis since, in contrast to the event when the expert's report has been turned in, the timing of the appointment of the expert per se should not affect settlement hazard.

  8. The precise identity of these parties is unknown to us due to the restricted-access nature of our dataset (see Sect. 3.1). Legal entities in public interest in Slovenia provide a wide range of services and include a broad set of either public or public–private organizations such as museums, theaters, schools, libraries, hospitals, zoos, providers of recreation services and sports organizations, and public institutes for compulsory social security services (health, pension, unemployment and disability insurance).

  9. A further concern regarding sample selection, which complicates empirical analysis of the determinants of court outcomes, is that the sample of filed cases might not be a random sample of all disputes. Given the inherent lack of data about the disputes for which a legal claim was never officially asserted (see, e.g., Cooter and Rubinfeld 1989: 1082), our analysis alleviates this concern via the inclusion of a broad set of plaintiff, defendant, and case level controls, as well as fixed effects (see, e.g., Bhattacharya et al. 2007: 628, 643, 652-653).

  10. See Andersen et al. (2012), Noordzij et al. (2013), and Cleves et al. (2010) for a detailed discussion of the differences between the two approaches.

  11. This approach to data formatting is standard in survival analysis (see, e.g., Cleves et al. 2010). Estimation-wise, it is equivalent to an alternative approach whereby the data is split into time intervals of fixed length (e.g. months).

  12. Detailed results are available upon request.

  13. The coefficient estimates based on the Fine and Gray (1999) model are, as expected, similar to those based on model (1) in Table 4 and are available upon request.

  14. We also estimated other parametric specifications (such as exponential and Gompertz) and found qualitatively identical results.

  15. Combining the modelling of shared frailty with inclusion of group fixed effects is a suitable approach (see Cleves et al. 2010: 201).

  16. The lack of convergence of estimates is not an uncommon problem in the estimation of various frailty models (see, e.g., Boyd and Hoffman 2013: fn. 24).

  17. We further aimed to examine the consequences of directly modeling unobserved heterogeneity by estimating an unshared frailty model, where the multiplicative effect of unobserved heterogeneity on the hazard function is modeled as observation-specific (rather than group-specific). For reasons of identifiability, unshared frailty models do not exist within the semiparametric Cox regression framework (see Cleves et al. 2010: 156). We therefore attempted to estimate parametric, Weibull unshared frailty models. These unshared frailty models, however, also failed to converge.

  18. Consequently, model (3) in Table 4 and the model in Table 5 do not lend themselves to estimation using a stratified hazard model.

References

  • Andersen, P. K., Geskus, R. B., de Witte, T., & Putter, H. (2012). Competing risks in epidemiology: Possibilities and pitfalls. International Journal of Epidemiology, 41, 861–870.

    Article  Google Scholar 

  • Anderson, J., Bernstein, D., & Gray, C. (2005). Judicial systems in transition economies: Assessing the past, looking to the future. The World Bank: The International Bank for Reconstruction and Development.

    Book  Google Scholar 

  • Ayuso, M., Bermudez, L., & Santolino, M. (2015). The dynamics of one-sided incomplete information in motor disputes. International Review of Law and Economics, 41, 77–85.

    Article  Google Scholar 

  • Bebchuk, L. A. (1984). Litigation and settlement under imperfect information. RAND Journal of Economics, 15, 404–415.

    Article  Google Scholar 

  • Bhattacharya, U., Galpin, N., & Haslem, B. (2007). The home court advantage in international corporate litigation. Journal of Law and Economics, 50(4), 625–660.

    Article  Google Scholar 

  • Bielen, S., Marneffe, W., & Vereeck, L. (2015). An empirical analysis of case disposition time in Belgium. Review of Law and Economics, 11(2), 293–316.

    Article  Google Scholar 

  • Blumenthal, J. A. (2005). Law and the emotions: The problems of affective forecasting. Indiana Law Journal, 80(2), 155–238.

    Google Scholar 

  • Boyd, C. L., & Hoffman, D. A. (2013). Litigating toward settlement. Journal of Law Economics and Organization, 29(4), 898–929.

    Article  Google Scholar 

  • Bronsteen, J., Buccafusco, C., & Masur, J. S. (2014). Happiness and the law. Chicago: University of Chicago Press.

    Book  Google Scholar 

  • CEPEJ (The European Commission for the Efficiency of Justice). 2014. Report on “European judicial systems–edition 2014 (2012 data): Efficiency and quality of justice.”

  • Cleves, M., Gutierrez, R. G., Gould, W., & Marchenko, Y. V. (2010). An introduction to survival analysis using stata (3rd ed.). College Station: Stata Press.

    Google Scholar 

  • Cooter, R. D., & Rubinfeld, D. L. (1989). Economic analysis of legal disputes and their resolution. Journal of Economic Literature, 27(3), 1067–1097.

    Google Scholar 

  • Cox, D. R. (1972). Regression models and life-tables. Journal of the Royal Statistical Society: Series B (Methodological), 34(2), 187–220.

    Google Scholar 

  • Cross, F. B. (2000). In praise of irrational plaintiffs. Cornell Law Review, 86, 1–32.

    Google Scholar 

  • Daughety, A. F., & Reinganum, J. F. (1994). Settlement negotiations with two-sided asymmetric information: Model duality, information distribution, and efficiency. International Review of Law and Economics, 14, 283–298.

    Article  Google Scholar 

  • Daughety, A. F., & Reinganum, J. F. (2012). Settlement. In Sanchirico, C.W. (Ed.), The encyclopedia of law and economics (second edition), Ch. 15, Vol. 8 (procedural law and economics). Cheltenham and Camberley: Edward Elgar Publishing Ltd, 386–471.

  • Deffains, B., & Doriat, M. (1999). The dynamics of pretrial negotiation in France: Is there a deadline effect in the French legal system? International Review of Law and Economics, 19, 447–470.

    Article  Google Scholar 

  • Dimitrova-Grajzl, V., Grajzl, P., Sustersic, J., & Zajc, K. (2012). Court output, judicial staffing, and the demand for court services: Evidence from Slovenian courts of first instance. International Review of Law and Economics, 32(1), 19–29.

    Article  Google Scholar 

  • Dimitrova-Grajzl, V., Grajzl, P., & Zajc, K. (2014). Understanding modes of civil case disposition: Evidence from Slovenian courts. Journal of Comparative Economics, 42(4), 924–939.

    Article  Google Scholar 

  • Doornik, K. (2014). A rationale for mediation and its optimal use. International Review of Law and Economics, 38, 1–10.

    Article  Google Scholar 

  • Eisenberg, T., & Farber, H. S. (1997). The litigious plaintiff hypothesis: Case selection and resolution. RAND Journal of Economics, 28, S92–S112.

    Article  Google Scholar 

  • Eisenberg, T., & Lanvers, C. (2009). What is the settlement rate and why should we care? Journal of Empirical Legal Studies, 6(1), 111–146.

    Article  Google Scholar 

  • Farber, H. S., & White, M. J. (1991). Medical malpractice: An empirical examination of the litigation process. RAND Journal of Economics, 22, 199–217.

    Article  Google Scholar 

  • Farmer, A., & Pecorino, P. (1996). Issues of informational asymmetry in legal bargaining. In D. A. Anderson (Ed.), Dispute resolution: Bridging the settlement gap (pp. 79–105). Greenwich: JAI Press.

    Google Scholar 

  • Fenn, P., & Rickman, N. (2014). Information and the disposition of medical malpractice claims: A competing risk analysis. Journal of Law Economics and Organization, 30(2), 244–274.

    Article  Google Scholar 

  • Fine, J. P., & Gray, R. J. (1999) A proportional hazards model for the subdistribution of a competing risk. Journal of the American Statistical Association, 94(446), 496–509.

    Article  Google Scholar 

  • Fournier, G. M., & Zuehlke, T. W. (1996). The timing of out-of-court settlements. RAND Journal of Economics, 27(2), 310–321.

    Article  Google Scholar 

  • Friedman, D., & Wittman, D. (2007). Litigation with symmetric bargaining and two-sided incomplete information. Journal of Law Economics and Organization, 23, 98–126.

    Article  Google Scholar 

  • Galanter, M. (2004). The vanishing trial: An examination of trials and related matters in federal and state courts. Journal of Empirical Legal Studies, 1(3), 459–570.

    Article  Google Scholar 

  • Galič, A. (2008). Slovenia. In P. Taelman (Ed.), International encyclopedia for civil procedure. Kluwer Law International: Alphen aan den Rijn.

    Google Scholar 

  • Galič, A. (2014). (In)compatibility of procedural preclusions with the goals of civil justice: An ongoing debate in Slovenia. In A. Uzelac (Ed.), Goals of civil justice and civil procedure in contemporary judicial systems, Ius Gentium: Comparative perspectives on law and justice, Chapter 11, 221–243. Berlin: Springer.

    Google Scholar 

  • Galič, A., & Hodges, C. (2012). Slovenia. In C. Hodges, I. Benöhr, & N. Creutzfeld-Banda (Eds.), Consumer ADR in Europe (civil justice systems) (pp. 197–206). Oxford: Hart Publishing.

    Google Scholar 

  • Gould, J. P. (1973). The economics of legal conflicts. Journal of Legal Studies, 2, 279–300.

    Article  Google Scholar 

  • Grajzl, P., Dimitrova-Grajzl, V., & Zajc, K. (2016). Inside post-socialist courts: The determinants of adjudicatory outcomes in Slovenian commercial disputes. European Journal of Law and Economics, 41(1), 85–115.

    Article  Google Scholar 

  • Grambsch, P. M., & Therneau, T. M. (1994). Proportional hazards tests and diagnostics based on weighted residuals. Biometrika, 81(3), 515–526.

    Article  Google Scholar 

  • Gutierrez, R. G. (2002). Parametric frailty and shared frailty survival models. The Stata Journal, 2(1), 22–44.

    Google Scholar 

  • Hadfield, G. K. (2004). Where have all the trials gone? Settlements, non-trial adjudications and statistical artifacts in the changing disposition of federal civil cases. Journal of Empirical Legal Studies, 1(3), 705–734.

    Article  Google Scholar 

  • Hay, B. L., & Spier, K. E. (1998). Settlement of litigation. In P. Newman (Ed.), The New Palgrave dictionary of economics and the law (pp. 442–451). London: Macmillan Reference Limited

    Google Scholar 

  • Huang, P. H., & Wu, H.-M. (1992). Emotional responses in litigation. International Review of Law and Economics, 12(1), 31–44.

    Article  Google Scholar 

  • Kaplow, L., & Shavell, S. (2002). Economic analysis of law. In A. J. Auerbach & M. Feldstein (Eds.), Handbook of public economics, Vol III, Chapter 25 (pp. 1661–1784). Amsterdam: North Holland.

    Chapter  Google Scholar 

  • Kaufmann, P. J., & Stern, L. W. (1988). Relational exchange norms, perceptions of unfairness, and retained hostility in commercial litigation. Journal of Conflict Resolution, 32(3), 534–552.

    Article  Google Scholar 

  • Kessler, D. (1996). Institutional causes of delay in the settlement of legal disputes. Journal of Law Economics and Organization, 12(2), 432–460.

    Article  Google Scholar 

  • Landes, W. M. (1971). An economic analysis of the courts. Journal of Law and Economics, 14, 61–107.

    Article  Google Scholar 

  • Langbein, J. H. (1985). The German advantage in civil procedure. The University of Chicago Law Review, 52(4), 823–866.

    Article  Google Scholar 

  • Langbein, J. H. (2012). The disappearance of civil trial in the United States. Yale Law Review, 122(3), 522–572.

    Google Scholar 

  • Lurie, P. M. (2013). Guided choice: Early mediated settlements and/or customized arbitrations. Journal of the American College of Construction Lawyers, 7(2), 167–175.

    Google Scholar 

  • Nalebuff, B. J. (1987). Credible pretrial negotiation. RAND Journal of Economics, 18, 198–210.

    Article  Google Scholar 

  • Noordzij, M., Leffondre, K., van Stralen, K. J., Zoccali, C., Dekker, F. W., & Jager, K. J. (2013). When do we need competing risks methods for survival analysis in nephrology? Nephrology, Dialysis, Transplantation, 28, 2670–2677.

    Article  Google Scholar 

  • Posner, R. A. (1977). Economic analysis of law (2nd ed.). Boston: Little, Brown and Company.

    Google Scholar 

  • Posner, R. A. (2005). Judicial behavior and performance: An economic approach. Florida State University Law Review, 32, 1259–1279.

    Google Scholar 

  • Priest, G. L., & Kline, B. (1984). The selection of disputes for litigation. Journal of Legal Studies, 13(1), 1–55.

    Article  Google Scholar 

  • Refo, P. L. (2004). The vanishing trial. Litigation, 30(2), 1–4.

    Google Scholar 

  • Reinganum, J. F., & Wilde, L. L. (1986) Settlement, litigation, and the allocation of litigation costs. The RAND Journal of Economics, 17(4), 557–566.

    Article  Google Scholar 

  • Schoenfeld, D. (1982). Partial residuals for the proportional hazards regression model. Biometrika, 69(1), 239–241.

    Article  Google Scholar 

  • Shavell, S. (1982). Suit, settlement, and trial: A theoretical analysis under alternative methods for the allocation of legal costs. Journal of Legal Studies, 11, 1–2.

    Article  Google Scholar 

  • Shavell, S. (2004). Foundations of economic analysis of law. Cambridge: Belknap Press/Harvard University Press.

    Google Scholar 

  • Spier, K. E. (1992). The dynamics of pretrial negotiation. Review of Economic Studies, 59, 93–108.

    Article  Google Scholar 

  • Spier, K. E. (2007). Litigation. In A. M. Polinsky & S. Shavell (Eds.), Handbook of law and economics, Vol. I., Chapter 4 (pp. 259–342). Amsterdam: North Holland.

    Chapter  Google Scholar 

  • Spurr, S. J. (1997). The duration of litigation. Law and Policy, 19(3), 285–315.

    Article  Google Scholar 

  • Ulen, T. S. (2015). Law and subjective well-being. The University of Chicago Law Review, 82, 1753–1779.

    Google Scholar 

  • Westeus, M. (2014). Settlement probability asymmetries in the Swedish Labour Court. European Journal of Law and Economics, 38(3), 485–512.

    Article  Google Scholar 

Download references

Acknowledgments

For assistance in data collection and for helpful insights we are grateful to Sebastijan Potepan and Nevenka Rihar. We thank Nina Betetto, Samantha Bielen, Libor Dušek, Aleš Galič, Wim Marneffe, Margherita Saraceno, participants at the workshop Economic Analysis of Litigation in Torino, two anonymous reviewers, and editors Giovanni Ramello and Giuseppe Di Vita for valuable comments and suggestions.

Author information

Authors and Affiliations

  1. Department of Economics, The Williams School, Washington and Lee University, Lexington, VA, 24450, USA

    Peter Grajzl

  2. CESifo, Munich, Germany

    Peter Grajzl

  3. Faculty of Law, University of Ljubljana, 1000, Ljubljana, Slovenia

    Katarina Zajc

Authors
  1. Peter Grajzl
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Katarina Zajc
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Peter Grajzl.

Appendix

Appendix

See Tables 6, 7, 8 and 9.

Rights and permissions

Reprints and Permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Grajzl, P., Zajc, K. Litigation and the timing of settlement: evidence from commercial disputes. Eur J Law Econ 44, 287–319 (2017). https://doi.org/10.1007/s10657-016-9540-5

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10657-016-9540-5

Keywords

JEL Classifications

search

Navigation