An Experimental Analysis of the Structure of Legal Fees:udAmerican Rule vs. English Rule

摘要

The expanding volume of lawsuits and the ballooning of legal expenditures in recent years hasudattracted the interest, concern, and even anger of the American public and politicians. Theseuddevelopments have led law makers to consider alternative legal fee allocation rules as methods forudadministering justice more efficiently. Under the traditional American rule, parties to a lawsuitudmust each pay their own legal expenses. One reform proposal is the English rule, under which theudlosing party must pay the prevailing party's attorney fees in addition to her own expenses. Toudevaluate the different effects of these two rules on litigant behavior and legal outcomes, weudconduct a theoretical and experimental analysis of environments which can be interpreted as legaluddisputes in which the probability of winning a lawsuit is partially determined by the legaludexpenditures of the litigants and partially determined by the inherent merits of the case. Weudinvestigate decisions regarding trial expenditure and examine the effects of the two allocationudrules on pretrial issues of suit and settlement. The data demonstrate that game theoreticudequilibrium models produce good qualitative predictions of the relative institutional response toudchanges in the allocation rule and to differences in such parameters as case merit and lawyerudproductivity. In our most significant result, we find that the English rule produces significantlyudhigher expenditure at trial than the American rule. On the other hand, the frequency of trial isudsignificantly lower under the English rule. Combining these two effects, we find that averageudexpenditure per legal dispute is higher under the English rule than under the American rule.