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Third Party Contingency contracts in settlement and litigation

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  • Roland Kirstein

    (Universität des Saarlandes)

  • Neil Rickman

    (University of Surrey)

Abstract

We present, for the first time, a model of recent institutional developments in litigation funding across several European jurisdictions. Recognizing the financing constraints that British cost rules may impose on litigants, these new contractual arrangements combine contingency fees with third party cover for cost in the event of losing the case: we call these “Third Party Contingency” (TPC) contracts. Signing 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 also find that the mere availability of TPCs may generate the above strategic effect.

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Bibliographic Info

Paper provided by Berkeley Electronic Press in its series German Working Papers in Law and Economics with number 2002-1-1038.

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Handle: RePEc:bep:dewple:2002-1-1038

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Web page: http://www.bepress.com/gwp/default/

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Keywords: Contingent fees; British cost allocation rule; Legal Cost Insurance; strategic moves.;

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References

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  1. 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.
  2. 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.
  3. Lucian Arye Bebchuk, 1984. "Litigation and Settlement under Imperfect Information," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 404-415, Autumn.
  4. 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 451-76, October.
  5. 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.
  6. Cooter, Robert D. & Porat, Ariel, 2002. "Anti-Insurance," Berkeley Olin Program in Law & Economics, Working Paper Series qt1vw0d9sf, Berkeley Olin Program in Law & Economics.
  7. 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.
  8. van Velthoven, Ben & van Wijck, Peter, 2001. "Legal cost insurance and social welfare," Economics Letters, Elsevier, vol. 72(3), pages 387-396, September.
  9. Landes, William M, 1971. "An Economic Analysis of the Courts," Journal of Law and Economics, University of Chicago Press, vol. 14(1), pages 61-107, April.
  10. Spier, Kathryn E, 1992. "The Dynamics of Pretrial Negotiation," Review of Economic Studies, Wiley Blackwell, vol. 59(1), pages 93-108, January.
  11. Miceli, Thomas J, 1998. "Settlement Strategies," The Journal of Legal Studies, University of Chicago Press, vol. 27(2), pages 473-81, June.
  12. 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.
  13. Theodore Eisenberg & Henry S. Farber, 1999. "The Government as Litigant: Further Tests of the Case Selection Model," NBER Working Papers 7296, National Bureau of Economic Research, Inc.
  14. Kirstein, Roland, 1999. "Risk-Neutrality and Strategic Insurance," CSLE Discussion Paper Series 99-02, Saarland University, CSLE - Center for the Study of Law and Economics.
  15. Emons, Winand, 2000. "Expertise, contingent fees, and insufficient attorney effort," International Review of Law and Economics, Elsevier, vol. 20(1), pages 21-33, March.
  16. 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.
  17. Gravelle, Hugh & Waterson, Michael, 1993. "No Win, No Fee: Some Economics of Contingent Legal Fees," Economic Journal, Royal Economic Society, vol. 103(420), pages 1205-20, September.
  18. 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.
  19. Rickman, Neil, 1999. "Contingent fees and litigation settlement1," International Review of Law and Economics, Elsevier, vol. 19(3), pages 295-317, September.
  20. Polinsky, A. Mitchell & Rubinfeld, Daniel L., 2001. "Aligning the Interests of Lawyers and Clients," Berkeley Olin Program in Law & Economics, Working Paper Series qt2kz8r3j1, Berkeley Olin Program in Law & Economics.
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Citations

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Cited by:
  1. 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.
  2. Emons, Winand, 2004. "Conditional versus Contingent Fees," CEPR Discussion Papers 4532, C.E.P.R. Discussion Papers.
  3. Roland Kirstein, 2009. "Optimal Delegation in Nash Bargaining," FEMM Working Papers 09001, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
  4. Qiao, Yue, 2013. "Legal effort and optimal legal expenses insurance," Economic Modelling, Elsevier, vol. 32(C), pages 179-189.
  5. 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.
  6. 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.
  7. Andrew Daughety & Jennifer Reinganum, 2014. "The Effect of Third-Party Funding of Plaintiffs on Settlement," Vanderbilt University Department of Economics Working Papers 14-00002, Vanderbilt University Department of Economics.
  8. repec:van:wpaper:vuecon-sub-13-00001 is not listed on IDEAS
  9. Roland Kirstein & Matthias Peiss, 2013. "Quantitative Machtkonzepte in der Ökonomik," FEMM Working Papers 130004, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
  10. Winand Emons & Nuno Garoupa, 2004. "The Economics of US-style Contingent Fees and UK-style Conditional Fees," Diskussionsschriften dp0407, Universitaet Bern, Departement Volkswirtschaft.
  11. Kirstein, Roland, 2004. "Anti-Teilen in Teams," CSLE Discussion Paper Series 2004-04, Saarland University, CSLE - Center for the Study of Law and Economics.
  12. 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.
  13. Roland Kirstein, 2008. "Effizienzaspekte alternativer Streitbeilegung," FEMM Working Papers 08021, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.

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