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Steven Shavell, Sharing of Information Prior to Settlement or Litigation, 20 RAND J. Econ. 183 (1989).

Abstract: Parties in a legal dispute often communicate and share information before reaching a settlement, or failing that, proceeding to trial. The voluntary sharing of information prior to settlement negotiations is examined in a model, where one type of litigant (plaintiffs) possesses private information. The information pertains to the expected judgment the plaintiff would obtain from the trial. In equilibrium, plaintiffs whose predicted judgments would exceed a predicted threshold will disclose their information (if it can be substantial) and will settle for amounts greater than if they were to remain silent. Plaintiffs whose predicted judgments are lower will remain silent and will settle. The impact of the legal right of "discovery" also is studied. The principal conclusion (that some parties will choose not to reveal their information and, if all can voluntarily reveal their information, there will be no inefficient failures to agree) carries over to models of asymmetry of information in other fields, such as the price of goods offered for sale.