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Journal of Law, Economics, and Organization Advance Access originally published online on September 13, 2006
Journal of Law, Economics, and Organization 2007 23(3):519-546; doi:10.1093/jleo/ewm011
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© The Author 2006. Published by Oxford University Press on behalf of Yale University. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org

Fee-Shifting Rules in Litigation with Contingency Fees

Kong-Pin Chen*

Academia Sinica and National Taiwan University

Jue-Shyan Wang

National Cheng-Chi University

* Research Center for Humanities and Social Sciences, Academia Sinica, Taipei, 11529, Taiwan. Email: kongpin{at}gate.sinica.edu.tw.

This article theoretically compares the British and American fee-shifting rules in their influences on the behavior of the litigants and the outcomes of litigation. We build up a comprehensive litigation model with asymmetric information and agency costs, which makes it possible to make comparison on a broad arrays of issues in a single unified framework. We then solve for the equilibria under both American and British rules, and thereby compare their equilibrium settlement amounts and rates, expenditures incurred in trials, as well as the plaintiff's chances of winning and incentive to sue. The theoretical results are broadly consistent with existing empirical evidence.


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