Estimating Effects of English Rule on Litigation Outcomes

Abstract

The English rule for fee allocation prescribes that the loser of a lawsuit pay the winner’s litigation costs. Economic theory predicts that the English rule discourages settlement, increases litigation costs and encourages meritorious claims. The principal empirical work on the impact of the English rule by Hughes and Snyder (1990, 1995) relies on data from Florida’s use of the Rule for medical malpractice claims between 1980 and 1985. The principal findings are that plaintiffs win more often at trial, receive higher awards in these trials, and receive larger settlements. These findings are consistent with the notion that the English rule tends to screen out less meritorious cases. One potential difficulty with these studies is that they may not be robust to the method of controlling for case selection under alternative rules. In this paper we reexamine the Florida experiment with the English rule by placing bounds on the selection effects. We find that the median jury award increases under the English rule. We also find that the mean and median settlement amount increases. We find less conclusive evidence that the litigation costs increase although these results are not robust to the most extreme possible selection mechanisms. Collectively these findings are consistent with the prediction that the English rule improves case quality.