We provide a model showing that the use of confidential settlement as a strategy for a firm facing tort litigation leads to lower average safety of products sold than would occur if the firm were committed to openness. A rational risk-neutral consumer's response in a market, wherein a firm engages in confidential settlements, may be to reduce demand. A firm committed to openness incurs higher liability and R&D costs, though product demand is not diminished. We identify conditions such that if the cost of credible auditing (to verify openness) is low enough, a firm prefers to eschew confidentiality.

We explore how the incentives of a plaintiff and her attorney, when considering filing suit and bargaining over settlement, can differ between those suits associated with stand-alone torts cases and those suits involving mass torts. We contrast “individual-based liability determination” (IBLD), wherein a clear description of the mechanism by which a defendant’s actions translate into a plaintiff’s harm is available, with “population-based liability determination” (PBLD), wherein cases rely upon the prevalence of harms in the population to persuade a judge or jury to draw an inference of causation or fault. We show that PBLD creates a “rational optimism effect” on the plaintiff’s side that is inherent in many mass tort settings. For plaintiffs and their attorneys this effect creates incentives for higher settlement demands and results in greater interim joint payoffs and an increased propensity to file suit. Consequently, the defendant in a PBLD case faces an increased ex ante expected cost compared with the IBLD regime, thereby increasing incentives to take care.