Visscher, Louis; Schepens, Tom --- "A Law and Economics Approach to Cost Shifting, Fee Arrangements and Legal Expense Insurance" [2010] ELECD 850; in Tuil, Mark; Visscher, Louis (eds), "New Trends in Financing Civil Litigation in Europe" (Edward Elgar Publishing, 2010)

Book Title: New Trends in Financing Civil Litigation in Europe

Editor(s): Tuil, Mark; Visscher, Louis

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781848446854

Section: Chapter 2

Section Title: A Law and Economics Approach to Cost Shifting, Fee Arrangements and Legal Expense Insurance

Author(s): Visscher, Louis; Schepens, Tom

Number of pages: 26

Extract:

2. A law and economics approach to
cost shifting, fee arrangements and
legal expense insurance
Louis Visscher and Tom Schepens

1. INTRODUCTION

In this chapter, we will provide an overview of the economic literature
regarding cost shifting, fee arrangements and legal expense insurance. In
the economic analysis of law, legal rules are regarded as instruments which
can provide actors with behavioural incentives. In essence, private law
(torts, contracts, property, etc.) allocates the costs which arise out of dif-
ferent activities. Those costs may only be borne by the party causing them
if the party initially suffering from them brings suit. Problems in financing
civil litigation may effectively hinder such lawsuits, so that the behavioural
incentives which the law intends to provide do not reach the party causing
the harm.
For example, tort law is regarded as an instrument that induces people
to take care. The prospect of being held liable after negligently having
caused losses may induce a potential tortfeasor to take due care, because
taking due care (thereby avoiding liability) is less costly than taking too
little care (and being liable). Contract law is seen as a device that enables
people to increase welfare by engaging in voluntary transactions. The
remedies of contract law (specific performance and damages) induce the
debtor to fulfil his contractual duties when this is less costly than breach-
ing the contract and facing the sanction. If the victim of a tort or the credi-
tor in a contractual setting does not bring a claim ...