The Closer

A Mediation Newsletter September 2011

Diminishing Returns
by James Rainwater

In economics, the Law of Diminishing Returns states essentially that with additional resources expended the beneficial outcome does not improve proportionately. For example, a factory lowers the work area temperature by one degree at a cost of $10,000 per month and increases production by $20,000 per month. The same factory lowers the temperature an additional degree at a cost of another $10,000 per month, but the additional increase in production drops to $1,000 per month. In this example, the first thermostat adjustment pays off; the second adjustment does not.

In mediation, we often see similar situations arise, where parties are offered choices to settlement. Of course, not every settlement conference can provide agreeable resolution for all parties involved. However, parties must weigh the costs and benefits of their decisions in a very sober manner.

Here is where the attorneys and mediator can act as a sounding board for the parties. As the mediator can exert only so much influence on the disputants, it is incumbent upon the representing attorneys to really guide their clients toward a reasonable settlement. As in economics, the client needs to consider the costs of settlement versus continued litigation, as well as the benefits of settlement versus continued litigation.

The subject matter may be a contract dispute, personal injury, or child custody. Yet, the decision-making process adheres to the Law of Diminishing Returns in all matters. The cost may not be wholly financial in a family case, but a practical child visitation schedule presented at mediation may be worth accepting rather than assuming the risk of a hearing or trial with perhaps the court adding just one day of visitation per month. The parties need to consider the financial cost of pursuing a case, as well as the financial and legal costs of taking a risk at trial.

How efficacious is it to continue on to trial in order to secure an amount only slightly better than the last offer made during the mediation conference? The idea of mediation is not simply to compromise to the point of disadvantage and discomfort. Mediation is all about weighing the immediate attainable of the present versus the unknown outcome of the future. Consider offering your client a lesson in Economics 101 before your next mediation. It may save you a great deal of time and frustration.

Rainwater Law