Law & Economics Working Papers
This article is structured as follows. Part I considers the reasons why cases do not settle, or why they do not settle more quickly than they do, and discusses how settlement escrows can facilitate settlement in each context. Part II provides a game-theoretic model of a settlement escrow in order to further demonstrate how this device can reduce delay and promote settlement in the presence of asymmetric information. In the model, the use of an escrow device results in a higher level of settlement than would occur in the absence of the escrow, and thus saves transactions costs for the parties. In addition, the expected settlement is as close or closer to the true value of the claim than in the absence of a settlement escrow. Part III discusses some subtle issues and potential problems with the implementation of settlement escrows. Part IV briefly suggests some potential applications of the model outside the context of civil litigation and Part V addresses the relationships among arbitration, mediation, and settlement escrows.
Geoffrey P. Miller & Robert H. Gertner, "Settlement Escrows" (Coase-Sandor Institute for Law & Economics Working Paper No. 25, 1994).