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Legal compliance and litigation spending under the English and American rule: Experimental evidence

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  • Baptiste Massenot
  • Maria Maraki
  • Christian Thoeni

Abstract

We investigate fee-shifting rules in litigation with regard to their impact on legal compliance, settlement, and litigation spending. We develop a model to compare the English rule, according to which the winning party is compensated by the losing party, to the American rule, according to which parties pay their own expenses independent of the outcome of the trial. We conduct an experiment to put the predictions to an empirical test. In accordance with the model, we find that litigants spend substantially more under the English rule than under the American rule. Defendants are significantly more compliant under the English rule when out-of-court settlement is not possible, but not when settlement is possible. Settlement rates do not significantly differ between the two rules, nor do they differ within the subsets of strong or weak cases.

Suggested Citation

  • Baptiste Massenot & Maria Maraki & Christian Thoeni, 2016. "Legal compliance and litigation spending under the English and American rule: Experimental evidence," Cahiers de Recherches Economiques du Département d'économie 16.19, Université de Lausanne, Faculté des HEC, Département d’économie.
    • Handle: RePEc:lau:crdeep:16.19
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    More about this item

    Keywords

    litigation; experiment; American rule; English rule; fee-shifting; loser-pays; legal compliance; settlement; litigation spending;
    All these keywords.

    JEL classification:

    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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