Abstract
This article explores how a fair-minded regulator has to set policy through an asymmetric reimbursement. The lawyer for a citizen group works on a contingent-fee basis, whereas a polluting firm has either in-house legal advice or lawyers on retainer. Under an asymmetric reimbursement rule we show: (i) the case goes to settlement if the objective merits of the case favour the citizen group; (ii) whereas it goes to trial, the probability winning the citizen group has is less than 50%, and the reimbursement policy incurs the total effort in trial to increase if the merits of the case favour the firm.
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