Fee-Shifting Rules in Litigation with Contingency Fees Kong-Pin Chen* Academia Sinica and National Taiwan University

This article theoretically compares the British and American fee-shifting rules in their influences on the behavior of the litigants and the outcomes of litigation. We build up a comprehensive litigation model with asymmetric information and agency costs, which makes it possible to make comparison on a broad arrays of issues in a single unified framework. We then solve for the equilibria under both American and British rules, and thereby compare their equilibrium settle-ment amounts and rates, expenditures incurred in trials, as well as the plaintiff’s chances of winning and incentive to sue. The theoretical results are broadly con-sistent with existing empirical evidence. 1