Most regulatory matters are settled informally; only a small number result in litigation. When a company is in a dispute with a federal agency, it knows that if it does not reach a settlement, there can be costly litigation. From the perspective of the government agency, the litigation is costless—the taxpayers foot the bill. Agencies know that the threat of costly litigation enhances their chance of extracting a settlement from the company. Should the government use this leverage to extract more in a settlement than it knows it would be likely to get in a court-resolved dispute?