Abstract
Employment discrimination cases filed during recessions are more likely to settle after filing and less likely to be won by plaintiffs than those filed when the economy is strong. This model of litigation confirms two predictions of the Priest-Klein model of litigation. First, relatively weak cases (for either party) should be more likely to settle. Second, the party with the greater stake in litigation will have the higher win rate in adjudicated disputes; the special case of even stakes produces a 50 percent plaintiff win rate. The settlement process does not produce complete selection, however: the strong version of the Priest-Klein model predicts a constant win rate over the cycle, but the win rate falls during recessions. The observed settlement and win rate effects cannot be explained by changes in the parties' relative stakes over the business cycle, nor by variations over the cycle in the types of cases brought.
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