There has been much debate in the law and economics literature over the effect of fee shifting rules on settlement. Richard A. Posner and Steven Shavell have concluded that fee shifting of the English “loser pays” type would decrease the likelihood of settlement. They viewed parties as pursuing litigation because they are overly optimistic about their chances at trial, which causes them to discount the amount of attorneys’ fees they will have to pay, and thus makes settlement less attractive. This position has been challenged by John J. Donohue III, who argued that Posner *1870 and Shavell failed to consider the Coase theorem and instead presented a model showing that the settlement rate would be identical under the American and British rules. John C. Hause also argued that fee shifting rules raise the stakes, creating an incentive to spend more at trial and, by increasing the projected costs, a heightened expectation of benefits from settlement. Keith N. Hylton differentiated between a “filing effect” and a “settlement effect.” He concluded that “[d]efendants who can credibly commit to large litigation expenses are less likely to be sued under the British than under the American rule,” while “[t]he incentive to litigate rather than to settle a dispute is greater under the British than under the American rule.” Perhaps the most that can be said with confidence is that the variables and details affecting incentives are sufficiently complex that, as Donohue remarked, “[u]ntil a better empirical foundation has been established, the existing theoretical arsenal is still too weak to resolve many of the ultimate questions of interest.” 76 Tex. L. Rev. 1863, 1869-70 (1998)

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