Understanding the Effects of Third-Party Litigation Funding

     Over the past twenty years the once-prohibited practice of third-party financing of lawsuits has become a niche industry in the United States and abroad, as large banks, hedge funds, and private investors often fund medical malpractice claims, class actions against corporations, and other tort claims such that they can share in the potential winnings. While the practice is becoming increasingly commonplace, many questions have emerged regarding the likely impacts of these arrangements on the incentives of litigants and other parties in various lawsuits, and their consequences for litigation and settlement prospects. A new policy brief, which draws on the research of CSDI Affiliates Andrew F. Daughety, the Gertrude Conaway Vanderbilt Professor of Economics, and Jennifer F. Reinganum, the E. Bronson Ingram Professor of Economics at Vanderbilt University, engages these issues and demonstrates that several of the anticipated impacts of these litigation mechanisms might be less clear than advocates and opponents have claimed, and they provide guidance on various policy prescriptions for administering these arrangements in the future.

The Effects of Third-Party Litigation Funding - CSDI_PB_2013-06.pdf

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