'No Win, No Fee', Cost-Shifting and the Costs of Civil Litigation: A Natural Experiment

29 Pages Posted: 20 Feb 2014

See all articles by Paul Fenn

Paul Fenn

University of Nottingham

Veronica Grembi

University of Milan - Department of Economics, Management and Quantitative Methods (DEMM)

Neil Rickman

University of Surrey - Department of Economics

Date Written: February 17, 2014

Abstract

Expenditure on legal services has been rising for much of the last two decades and has attracted considerable policy attention in the UK. We argue that an important reason for this increase lies within the introduction of 'no win no fee' schemes in 1995 and a subsequent amendment which allowed claimants to shift additional costs (introduced by the 'no win no fee' schemes) onto losing defendants in 2000. In this paper, we evaluate the effect of the second of these reforms - that relating to the shifting of costs. We describe how this may have exacerbated the negative externality often associated with cost-shifting, which arises from losing litigants being held liable to pay their successful opponents' costs. We use a dataset consisting of (daily) employers' liability claims to undertake a regression discontinuity design (RDD) in order to see whether claimants' litigation costs increased following the introduction of the cost-shifting amendment. We find that costs increased by approximately 25% after the new policy was introduced, consistent with theoretical predictions. As well as providing a rare test of underlying theory (and the first with UK data), our analysis also points towards the need for more careful evaluation of policy in order to avoid unintended consequences of reform.

Keywords: Litigation, Cost-shifting, Regression Discontinuity Design

JEL Classification: K4, D04

Suggested Citation

Fenn, Paul and Grembi, Veronica and Rickman, Neil, 'No Win, No Fee', Cost-Shifting and the Costs of Civil Litigation: A Natural Experiment (February 17, 2014). Baffi Center Research Paper No. 2014-152. Available at SSRN: https://ssrn.com/abstract=2398295 or http://dx.doi.org/10.2139/ssrn.2398295

Paul Fenn

University of Nottingham ( email )

University Park
Nottingham, NG8 1BB
United Kingdom

Veronica Grembi (Contact Author)

University of Milan - Department of Economics, Management and Quantitative Methods (DEMM) ( email )

Via Conservatorio, 7
Milan, 20122
Italy

Neil Rickman

University of Surrey - Department of Economics ( email )

Guildford
Surrey GU2 7XH
United Kingdom
+44 1483 689 923 (Phone)
+44 1483 689 548 (Fax)

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