Abstract
It is shown that many cases proceed to court despite ample opportunity for interaction and much of the settlement takes place on the courthouse steps (the effect). When fixed costs of bargaining are introduced, a U-shaped pattern of settlement appears with a greater chance of settlement at the beginning and at the end of negotiations than in the middle. These characteristics persist even as the time between offers approaches zero. The theoretical predictions are consistent with the stylized facts: a large proportion of the lawsuits that are settled out of court are settled very close to the trial date or in the first several days of the trial.3 Although the deadline effect appears in many other settings as well it has little theoretical support.4
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