Legal Compliance and Litigation Spending Under the English and American Rule: Theory and Experimental Evidence
29 Pages Posted: 17 Feb 2016
Date Written: November 30, 2015
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, in which the winning party is compensated by the losing party, to the American rule, in 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.
Keywords: litigation, experiment, American rule, English rule, fee-shifting, loserpays, legal compliance, settlement, litigation spending
JEL Classification: K13, K41, C91, C72, D44
Suggested Citation: Suggested Citation