EPRG 0604

Joseph Doucet, Stephen Littlechild

Negotiated Settlements: The development of economic and legal thinking

EPRG 0604 Non-Technical Summary | PDF

Abstract: Negotiated settlements are a form of regulation of public utilities that is alternative or complementary to the conventional process of litigation. The Federal Power Commission pioneered the use of settlements in the early 1960s as a means of coping with an increased workload and backlog. But until recently the economic literature has had little or nothing to say about such settlements. Legal scholars have emphasized the importance of settlements in coping with the regulatory load, and in saving time and money, albeit with some concern about transparency and the treatment of non-unanimous settlements. More recently, however, they suggest that settlements better serve the needs of the parties, allow greater flexibility and innovation, and can achieve results that lie beyond traditional regulatory authority. Recent economic research has indicated the high proportion of regulatory cases dealt with by settlements in the US and Canada and confirmed that settlements are not simply a more efficient way of doing the same thing as regulation. Rather, they involve considerable innovation, notably the introduction of price caps and other incentive mechanisms that otherwise would not have been likely or even possible.

Keywords: negotiated settlements, regulation, innovation.