Discovery, disclosure, and confidence

Abstract

With the procedural tools of discovery and disclosure available, why would a plaintiff and a defendant fail to both understand the merits of the case and settle it out of court? I analyze a model in which initially the defendant has complete information about the case whereas the plaintiff knows nothing but can learn any fraction of the information, at no cost to himself, through discovery, after which the defendant can disclose any fraction of the remaining information at a constant marginal cost. The plaintiff may underutilize discovery so as to have a chance of privately identifying the defendant's type while still outwardly maintaining his belief that the defendant may have a weak case. For a defendant with a strong case, incomplete discovery can make it excessively costly to signal his strength through a high level of disclosure and excessively risky to signal his strength through a low settlement offer. I show that, in that situation, the availability of discovery actually decreases the probability of settlement.