The difficulty in valuing a given litigation is well known, but it is important to recognize the three different sources of uncertainty. First is the basic question of the amount in controversy and all the ways that the judge, jury and law can affect that amount. Second are the impact of transaction costs–the cost of litigation–on the amount in controversy. And third is the sequential nature and nonmonotonic value of the option to settle. The latter is almost universally overlooked. In this...
