confidential settlement agreements as is common in products liability
Instead, Bayer eschewed secret settlement agreements and successfully settled the vast majority of cases according to its own
schedule at a total cost much lower than expected.
As this chapter
explains below, the decision not agreements was closely linked to cases.
to seek confidential settlement the successful settling of many
GAME-THEORETIC MODELS OF SETTLEMENT BEHAVIOR HELP EXPLAIN BAYER’S ACTIONS
Why did Bayer settlement behavior
adopt this provides a
The economic literature on
incentives that efforts assumed
parties face during litigation and settlement.
strength of years, more
claims (Posner, 1973);(Landes, 1971). sophisticated and realistic models of
Over the past thirty settlement behavior
have been developed.
In particular, Spier (1992) showed that
settlement tends to follow a U-shaped curve.
After an initial flurry of
settlements, settlements decline until trial become imminent when they
In this model, two countervailing dynamics are at work.
Litigation is expensive so earlier rather than later.
that parties However, by
prefer to reach a settlement waiting until close to trial,
parties can make stronger take-it-or-leave-it offers which
to extract more of the surplus from avoiding trial.
allows them trial is is a U-shaped
distribution of the timing of settlement (Spier, 2007).
of this literature are particularly relevant to understanding the
11 12 Interviews with Gary McConnell, George Lykos, John Ruiz. Daugherty and Reinganum (2008) provide an excellent overview of this literature.