Mediation’s Economic Hangup

A substantial number of mediations fail because of a lack of each party’s appreciation for the underlying economics of the case. While everyone feels they have sound intuition when it comes to litigation settlement bargaining, the economic issues are complex and even the most sophisticated institutional litigant can, at times, fail to price legal claims appropriately in pre-trial negotiation.

Needless to say, this complexity is also an obstacle to successful mediation. Parties participating in mediation can fail to see the rationale of their opponent’s settlement position simply because they may not correctly factor all of the economic variables appropriately.

A litigant’s intransigence in settlement negotiation or mediation can also have a very real economic basis. For example, in certain situations, high contingent fee structures can induce in a plaintiff a relative indifference as between settlement and trial. A similar obstacle to settlement can occur when a defendant has a relatively high cost of capital.

In short, the fundamental economic characteristics of the case can hamper settlement and stymie any hope for successful mediation. [More]

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