Contracting on litigation

• 成果类型: Article
• 署名作者: Spier, Kathryn E.; Prescott, J. J.
• 署名单位: Harvard University; National Bureau of Economic Research; University of Michigan System; University of Michigan
• 刊物名称: RAND JOURNAL OF ECONOMICS
• ISSN/ISSBN: 0741-6261
• DOI: 10.1111/1756-2171.12274
• 发表日期: 2019
• 页码: 391-417
• 关键词: contingent fees; settlement; lawyers; TRIAL; allocation; insurance; selection

摘要

Two risk-averse litigants with different subjective beliefs negotiate in the shadow of a pending trial. Through contingent contracts, the litigants can mitigate risk and/or speculate on the trial outcome. Contingent contracting decreases the settlement rate and increases the volume and costs of litigation. These contingent contracts mimic the services provided by third-party investors, including litigation funders and insurance companies. The litigants (weakly) prefer to contract with risk-neutral third parties when the capital market is transaction-cost free. However, contracting with third parties further decreases the settlement rate, increases the costs of litigation, and may increase the aggregate cost of risk bearing.