Abstract
This paper uses an economics experiment to examine the affects of litigation financing rules on the settlement of tort claims. In 1983, the Model Rules of Professional Conduct eased the restrictions on attorney-financed lawsuits. Since that time, a number of state bar associations have begun allowing attorneys to pay their clients’ litigation expenses in particular situations. Our experiment compares a situation in which attorneys can fund litigation with one in which the clients must bear all costs themselves. We find that settlement is more likely to occur when attorneys pay litigation costs. These results suggest that the modern liberalization of litigation financing rules is an effective means of promoting settlement.
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