The following answers to frequently asked questions are set forth for the benefit of visitors
seeking information about the Fair Proposals System (the "System") beyond that which is set
forth on the System's Home Page. For purposes of the discussion set forth below, a party who,
as described on the Home Page, initiates a use of the System to issue an invitation to
another party is referred to as a "First Party," and the party to whom the invitation
is sent is referred to as a "Second Party."
This allows the First Party to commit to a fair and reasonable settlement amount without any concern that the proposed amount will be used as a starting point for demands for further concessions. The confidentiality of X serves the interests of each party, because it enhances the ability of the First Party to make a reasonable proposal.
No. The First Party is effectively making a take-it-or-leave-it proposal, and doing so in a highly credible manner.
The Settlement Terms are defined by the First Party at the outset of the process and are described in paragraph 6 of the Term Sheet that is generated by the System, based upon the data that the First Party enters at that time. The System provides the Second Party with a copy of that Term Sheet (which does not disclose the value of X) at the time that the Invitation is issued. Visitors to this website can see a sample Term Sheet and see various alternative versions of paragraph 6 by reviewing the "Review Term Sheet" page that appears on Sample Pages.
Yes, but only if neither party has previously done so with respect to the claim in question. The prospect of a subsequent use of the System would degrade the incentives of the parties to make reasonable proposals. Thus, once the System has been initiated by a First Party with respect to a specific claim, the System will not generally permit either party, over the objection of the other, to initiate and maintain another use of the System with respect to that same claim.
This deprives the Second Party of an excuse for failing to use the System to make a reasonable proposal: The Second Party can't claim that its use of the System might make it look weak. In addition, this prevents the Second Party from attempting to use the System as a platform for posturing or sending self-serving signals to the other side: If the Second Party specifies an amount of money that is more favorable to it than X, or does not use the System, the System will not convey or disclose that information to the First Party.
This deprives the Second Party of a second excuse for failing to use the System to make a reasonable proposal: The Second Party can't claim any basis for concern about losing some portion of the surplus if it specifies a value for Y that is less favorable to it than X.
This deprives the Second Party of the third and final excuse that might be claimed for failing to respond with a reasonable proposal: the Second Party can't claim that it would have submitted a different value for Y had it known that X was less favorable to it than Y.
No. The Second Party's use of the System is entirely free of charge.
Any such "split-the-difference" feature would degrade the incentives of the parties to make honest proposals because each party would be obliged to take that feature into account in using the System. As a result, claims would fail to settle even where the parties’ private valuations matched or overlapped. Moreover, no legitimate purpose would be served by a feature that required the Second Party to "split-the-difference" if the numbers overlapped because the Second Party could avoid that by simply doing what is done in traditional settlement negotiations: starting out with a clearly unreasonable, self-serving number and then engaging in the tedious process of revising its position in very small increments until the case settled for X.
Yes, but that is equally possible and at least as probable if the parties don't use the System at all. With or without the System, neither party can ever truly know (even after a case has been settled) what the other party might have hypothetically been willing to settle for. (Here it should be recalled that the System does not maintain any information about any value submitted for Y: it simply determines whether any such value was equal to or less favorable to the Second Party than X and, if so, confirms to each party that the claim has settled for X,) The System does not purport to provide a means for either party to read the other party's mind with respect to that party's so-called "bottom line." It simply provides each party with an opportunity to (a) settle the case for an amount of money that that party deems to be acceptable at the present time, or (b) if the case does not settle prior to the deadline, to make a credible determination that the case cannot be settled for that amount at the present time.
lf the matter does not settle for X through the use of the System prior to the deadline, then the System will at that time offer the First Party a Certificate confirming the value specified for X and attesting to the fact that - as of the deadline - the Second Party had not entered data resulting in a settlement for X (without revealing anything else about any use or non-use of the System by the Second Party). In addition, if - but only if - the Second Party enters data into the System prior to the deadline specifying a value for Y that does not result in a settlement for X, then the System will at that time offer the Second Party a Certificate confirming the value specified for Y and attesting to the fact that this did not produce a settlement because Y was more favorable to the Second Party than X (without revealing X).
A Certificate allows a party that has committed to a reasonable settlement to demonstrate that the other party had effectively declined to settle for that amount at that time. This, in turn, allows a party that committed to a reasonable settlement to justify devoting its resources to pursuing something other than a voluntary agreement with the other side (such as litigation). In addition, in cases where a person that used or that was invited to use the System had a duty to others to arrive at a reasonable settlement if given an opportunity to do so (such as where that person was acting as an attorney or agent for someone else), such a person's failure to use the System to arrive at a reasonable settlement may cause evidence supporting a finding that he or she had breached that duty - in the form of a Certificate - to be delivered into the hands of an adversary.
The vast majority of claims eventually settle, but only after years of costly proceedings and failed attempts to arrive at a bargained solution. Claims drag on and settlements are delayed because each side has, and knows that the other has, strong incentives to posture in an effort to drive its adversary in a desired direction. Neither side views the other side's declared position to be genuine, nor can either persuade the other of the genuineness of its own position. If either party offers a reasonable settlement at an early stage, that party's adversary will be excused for rejecting it and for interpreting it as a signal of weakness and as a starting point for demanding further concessions, all to the prejudice of the offering side.
The vast majority of claims will settle when, but only when, the parties find themselves at a point where (as sometimes happens on the eve of the filing of a lawsuit and almost always happens on the eve of trial) it becomes apparent to each that reasonableness has become the most sensible strategy for both in the pursuit of their respective self-interests. For so long as at least one party is perceived as having an incentive to try to posture, very little meaningful communication about settlement can be expected to take place at all. In such contexts actions speak louder than words, and the most effective method for trying to make progress will consist of "tacit bargaining," as described in the work of Schelling.
The problem does not lie in determining what would constitute a reasonable settlement. That can be and is routinely determined (e.g., by lawyers involved in claims that eventually settle) without the benefit of any meaningful discussions about settlement with the other side, and often at a very early stage. This is done by simply looking at the common law, the circumstances of the case, and the outcomes arrived at in similar cases (a process that falls within the scope of what Schelling refers to as "focal" coordination). The problem lies in finding a way to use that information in a manner that is both credible and non-prejudicial, and that induces and incentivizes an adversary to make a similar determination at an early stage.
The Fair Proposals System directly addresses this problem and provides a full and complete solution. The System allows one party to unilaterally place both in a position where the incentives and excuses for posturing and for failing to formulate and commit to a reasonable settlement fall away at a much earlier stage.
The structure of the System is such that, for purposes of pursuing and protecting one's self-interest, the most sensible strategy for each party consists of using the System to commit to a reasonable and realistic settlement (i.e., a settlement that an independent and experienced attorney would consider appropriate in view of the risks and costs faced by each side). As an initial matter, the Second Party cannot determine whether the First Party has committed itself to an outcome that the Second Party would view as more than reasonable unless the Second Party uses the System to commit to one or more settlements that it views as reasonable prior to the deadline. The System's confidential features deprive the Second Party of any incentive or excuse for failing to make that determination. In addition, the System's confidential features - in combination with the provisions for the issuance of Certificates - allow the First Party to use the System to:
(a) place itself in a position in which it has a demonstrably strong incentive to commit to a reasonable settlement at the outset of the process (and no comparable incentive, and a strong disincentive, for failing to do so), thereby bestowing credibility upon its proposal; and
(b) place the Second Party in a position wherein the Second Party has a strong incentive to carefully reflect on the merits and value of the claim and to commit to a reasonable settlement prior to the deadline (and no incentive, and a strong disincentive, for failing to do so prior to that time).
Unlike all other dispute-resolution methods, an expectation or belief that your adversary will not commit to a reasonable settlement simply provides you with an added incentive, rather than a disincentive, for using the System to do so and to establish that this was done. Using the System to commit to a reasonable settlement is always the most sensible strategy for each party, because a party that does so will always advance its own interests, regardless of whether or not the other party recognizes this fact and does the same (and, if you are a First Party, regardless of whether the Second Party uses the System at all).