IDEAS home Printed from https://ideas.repec.org/a/mhr/jinste/urnsici0932-4569(200412)1604_555tpccis_2.0.tx_2-q.html
   My bibliography  Save this article

"Third Party Contingency" Contracts in Settlement and Litigation

Author

Listed:
  • Roland Kirstein
  • Neil Rickman

Abstract

We present a model of recent institutional developments in litigation funding across several European jurisdictions. They combine contingency fees with third party cover for cost in the event of losing the case: we call these "Third Party Contingency" (TPC) contracts. A TPC contract can make filing a suit credible and may increase settlement amounts. This does not, however, increase the likelihood of going to trial, since TPC contracts are only of mutual benefit to the plaintiff and the third party when the case settles out of court. We demonstrate that the mere availability of TPCs may generate this strategic effect.

Suggested Citation

  • Roland Kirstein & Neil Rickman, 2004. ""Third Party Contingency" Contracts in Settlement and Litigation," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 160(4), pages 555-575, December.
  • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200412)160:4_555:tpccis_2.0.tx_2-q
    as

    Download full text from publisher

    File URL: https://www.mohrsiebeck.com/en/article/third-party-contingency-contracts-in-settlement-and-litigation-1016280932456042776104
    Download Restriction: Fulltext access is included for subscribers to the printed version.
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Neil Rickman & Paul Fenn & Alastair Gray, 1999. "The reform of Legal Aid in England and Wales," Fiscal Studies, Institute for Fiscal Studies, vol. 20(3), pages 261-286, September.
    2. Kathryn E. Spier, 1992. "The Dynamics of Pretrial Negotiation," Review of Economic Studies, Oxford University Press, vol. 59(1), pages 93-108.
    3. Waldfogel, Joel, 1998. "Reconciling Asymmetric Information and Divergent Expectations Theories of Litigation," Journal of Law and Economics, University of Chicago Press, vol. 41(2), pages 451-476, October.
    4. Ken Binmore & Ariel Rubinstein & Asher Wolinsky, 1986. "The Nash Bargaining Solution in Economic Modelling," RAND Journal of Economics, The RAND Corporation, vol. 17(2), pages 176-188, Summer.
    5. Rickman, Neil, 1994. "The Economics of Contingency Fees in Personal Injury Litigation," Oxford Review of Economic Policy, Oxford University Press, vol. 10(1), pages 34-50, Spring.
    6. Lucian Arye Bebchuk, 1998. "Negative Expected Value Suits," NBER Working Papers 6474, National Bureau of Economic Research, Inc.
    7. Andrew F. Daughety & Jennifer F. Reinganum, 2003. "Found Money? Split-Award Statutes and Settlement of Punitive Damages Cases," American Law and Economics Review, Oxford University Press, vol. 5(1), pages 134-164.
    8. Theodore Eisenberg & Henry Farber, 2003. "The Government as Litigant: Further Tests of the Case Selection Model," American Law and Economics Review, Oxford University Press, vol. 5(1), pages 94-133.
    9. Barry Nalebuff, 1987. "Credible Pretrial Negotiation," RAND Journal of Economics, The RAND Corporation, vol. 18(2), pages 198-210, Summer.
    10. Gravelle, Hugh & Waterson, Michael, 1993. "No Win, No Fee: Some Economics of Contingent Legal Fees," Economic Journal, Royal Economic Society, vol. 103(420), pages 1205-1220, September.
    11. Roland Kirstein, 2000. "Risk Neutrality and Strategic Insurance," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 25(2), pages 251-261, April.
    12. Rickman, Neil, 1999. "Contingent fees and litigation settlement1," International Review of Law and Economics, Elsevier, vol. 19(3), pages 295-317, September.
    13. William M. Landes, 1974. "An Economic Analysis of the Courts," NBER Chapters, in: Essays in the Economics of Crime and Punishment, pages 164-214, National Bureau of Economic Research, Inc.
    14. Miceli, Thomas J, 1998. "Settlement Strategies," The Journal of Legal Studies, University of Chicago Press, vol. 27(2), pages 473-481, June.
    15. George L. Priest & Benjamin Klein, 1984. "The Selection of Disputes for Litigation," The Journal of Legal Studies, University of Chicago Press, vol. 13(1), pages 1-56, January.
    16. van Velthoven, Ben & van Wijck, Peter, 2001. "Legal cost insurance and social welfare," Economics Letters, Elsevier, vol. 72(3), pages 387-396, September.
    17. Jennifer F. Reinganum & Louise L. Wilde, 1986. "Settlement, Litigation, and the Allocation of Litigation Costs," RAND Journal of Economics, The RAND Corporation, vol. 17(4), pages 557-566, Winter.
    18. Kirstein, Roland & Schmidtchen, Dieter, 1997. "Judicial detection skill and contractual compliance," International Review of Law and Economics, Elsevier, vol. 17(4), pages 509-520, December.
    19. Lucian Arye Bebchuk, 1984. "Litigation and Settlement under Imperfect Information," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 404-415, Autumn.
    20. A. Mitchell Polinsky & Daniel L. Rubinfeld, 2003. "Aligning the Interests of Lawyers and Clients," American Law and Economics Review, Oxford University Press, vol. 5(1), pages 165-188.
    21. Emons, Winand, 2000. "Expertise, contingent fees, and insufficient attorney effort," International Review of Law and Economics, Elsevier, vol. 20(1), pages 21-33, March.
    22. Cooter, Robert D. & Porat, Ariel, 2002. "Anti-Insurance," Berkeley Olin Program in Law & Economics, Working Paper Series qt1vw0d9sf, Berkeley Olin Program in Law & Economics.
    23. Bebchuk, Lucian Arye, 1996. "A New Theory Concerning the Credibility and Success of Threats to Sue," The Journal of Legal Studies, University of Chicago Press, vol. 25(1), pages 1-25, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Roland Kirstein & Matthias Peiss, 2013. "Quantitative Machtkonzepte in der Ökonomik," FEMM Working Papers 130004, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    2. Kirstein, Roland, 2004. "Anti-Teilen in Teams," CSLE Discussion Paper Series 2004-04, Saarland University, CSLE - Center for the Study of Law and Economics.
    3. Winand Emons, 2006. "Playing It Safe with Low Conditional Fees versus Being Insured by High Contingent Fees," American Law and Economics Review, Oxford University Press, vol. 8(1), pages 20-32.
    4. Winand Emons & Nuno Garoupa, 2006. "US-style contingent fees and UK-style conditional fees: agency problems and the supply of legal services," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 27(5), pages 379-385.
    5. Winand Emons & Nuno Garoupa, 2004. "The Economics of US-style Contingent Fees and UK-style Conditional Fees," Diskussionsschriften dp0407, Universitaet Bern, Departement Volkswirtschaft.
    6. Winand Emons, 2007. "Conditional versus contingent fees," Oxford Economic Papers, Oxford University Press, vol. 59(1), pages 89-101, January.
    7. Kirstein, Roland & Gerhard, Hans, 2005. "The "Rainmaker's Dilemma": Bad Debt Loss Insurance in Settlement and Litigation," CSLE Discussion Paper Series 2005-02, Saarland University, CSLE - Center for the Study of Law and Economics.
    8. Schmidtchen, Dieter, 2002. "Wozu Strafrecht? Another View of the Cathedral," CSLE Discussion Paper Series 2002-14, Saarland University, CSLE - Center for the Study of Law and Economics.
    9. Jorge Lemus & Emil Temnyalov & John L. Turner, 2021. "Liability Insurance: Equilibrium Contracts under Monopoly and Competition," American Economic Journal: Microeconomics, American Economic Association, vol. 13(1), pages 83-115, February.
    10. Andrew F. Daughety & Jennifer F. Reinganum, 2014. "The Effect of Third-Party Funding of Plaintiffs on Settlement," American Economic Review, American Economic Association, vol. 104(8), pages 2552-2566, August.
    11. Julia Shamir & Noam Shamir, 2021. "Third-party funding in a sequential litigation process," European Journal of Law and Economics, Springer, vol. 52(1), pages 169-202, August.
    12. Deffains, Bruno & Desrieux, Claudine, 2015. "To litigate or not to litigate? The impacts of third-party financing on litigation," International Review of Law and Economics, Elsevier, vol. 43(C), pages 178-189.
    13. Roland Kirstein, 2009. "Optimal Delegation in Nash Bargaining," FEMM Working Papers 09001, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    14. Roland Kirstein, 2008. "Effizienzaspekte alternativer Streitbeilegung," FEMM Working Papers 08021, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    15. Qiao, Yue, 2013. "Legal effort and optimal legal expenses insurance," Economic Modelling, Elsevier, vol. 32(C), pages 179-189.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kirstein, Roland & Rickman, Neil, 2001. "FORIS contracts: Litigation Cost Shifting and Contingent Fees in Germany," CSLE Discussion Paper Series 2001-04, Saarland University, CSLE - Center for the Study of Law and Economics.
    2. Heyes, Anthony & Rickman, Neil & Tzavara, Dionisia, 2004. "Legal expenses insurance, risk aversion and litigation," International Review of Law and Economics, Elsevier, vol. 24(1), pages 107-119, March.
    3. Argenton, Cedric & Wang, Xiaoyu, 2020. "Litigation and Settlement under Loss Aversion," Discussion Paper 2020-008, Tilburg University, Center for Economic Research.
    4. He, Leshui, 2020. "A theory of pre-filing settlement and patent assertion entities," International Journal of Industrial Organization, Elsevier, vol. 70(C).
    5. Cédric Argenton & Xiaoyu Wang, 2023. "Litigation and settlement under loss aversion," European Journal of Law and Economics, Springer, vol. 56(2), pages 369-402, October.
    6. Yasutora Watanabe, 2005. "Learning and Bargaining in Dispute Resolution: Theory and Evidence from Medical Malpractice Litigation," 2005 Meeting Papers 440, Society for Economic Dynamics.
    7. Amy Fanner & Paul Pecorino, 2005. "Dispute Rates and Contingency Fees: An Analysis from the Signaling Model," Southern Economic Journal, John Wiley & Sons, vol. 71(3), pages 566-581, January.
    8. Zhou, J., 2010. "Access to justice : An economic approach," Other publications TiSEM 9d70f451-35c4-4878-92bf-7, Tilburg University, School of Economics and Management.
    9. Giuseppe Dari-Mattiacci & Bruno Deffains, 2007. "Uncertainty of Law and the Legal Process," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 163(4), pages 627-656, December.
    10. Andrew F. Daughety & Jennifer F. Reinganum, 1995. "Keeping Society in the Dark: On the Admissibility of Pretrial Negotiations as Evidence in Court," RAND Journal of Economics, The RAND Corporation, vol. 26(2), pages 203-221, Summer.
    11. Anne Duchêne, 2017. "Patent Litigation Insurance," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 84(2), pages 631-660, June.
    12. Lee, Yoon-Ho Alex & Klerman, Daniel, 2016. "The Priest-Klein hypotheses: Proofs and generality," International Review of Law and Economics, Elsevier, vol. 48(C), pages 59-76.
    13. Dari-Mattiacci, Giuseppe & Deffains, Bruno & Lovat, Bruno, 2011. "The dynamics of the legal system," Journal of Economic Behavior & Organization, Elsevier, vol. 79(1), pages 95-107.
    14. Farmer, Amy & Pecorino, Paul, 2002. "Pretrial bargaining with self-serving bias and asymmetric information," Journal of Economic Behavior & Organization, Elsevier, vol. 48(2), pages 163-176, June.
    15. J.J. Prescott & Kathryn E. Spier & Albert Yoon, 2014. "Trial and Settlement: A Study of High-Low Agreements," NBER Working Papers 19873, National Bureau of Economic Research, Inc.
    16. Klement, Alon, 2003. "Threats to sue and cost divisibility under asymmetric information," International Review of Law and Economics, Elsevier, vol. 23(3), pages 261-272, September.
    17. Antill, Samuel & Grenadier, Steven R., 2023. "Financing the litigation arms race," Journal of Financial Economics, Elsevier, vol. 149(2), pages 218-234.
    18. Samantha Bielen & Peter Grajzl & Wim Marneffe, 2017. "Understanding the Time to Court Case Resolution: A Competing Risks Analysis Using Belgian Data," CESifo Working Paper Series 6450, CESifo.
    19. J.J. Prescott & Kathryn E. Spier & Albert Yoon, 2014. "Trial and Settlement: A Study of High-Low Agreements," Journal of Law and Economics, University of Chicago Press, vol. 57(3), pages 699-746.
    20. Peter Grajzl & Katarina Zajc, 2017. "Litigation and the timing of settlement: evidence from commercial disputes," European Journal of Law and Economics, Springer, vol. 44(2), pages 287-319, October.

    More about this item

    JEL classification:

    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mhr:jinste:urn:sici:0932-4569(200412)160:4_555:tpccis_2.0.tx_2-q. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Thomas Wolpert (email available below). General contact details of provider: https://www.mohrsiebeck.com/jite .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.