Modeling the Likely Effects of Litigation Financing

The arguments for and against third-party litigation financing are based on incorrect assumptions regarding the impacts on total litigation. A formal model incorporating the choices of the plaintiff, the lawyer, and the financier shows only minimal impact on total litigation, largely positive. Yet, after addressing the potential for long-term, strategic behavior by financiers, it is obvious that some dangers remain. Divorced from the dramatic claims of proponents and opponents, litigation financing is merely a tool that can be used for good or bad, and differentiating by types of claims and the incentives of the parties allows that tool to be appropriately implemented.