סמינר באסטרטגיה

Noam Shamir, School of Management, Tel-Aviv University.

Abstract: 

Third party litigation financing - for-profit, non-recourse funding of litigation by a non-party - is a new and rapidly developing industry. 

Despite being described as one of the most influential trends in civil justice today, very little is known about litigation finance contracting, even though the advantages and drawbacks of this funding mechanism stem from the relationships such contracts establish. 

This work contributes to the growing body of literature on third-party litigation financing (TPF) in a number of important ways. 

First, we characterize a contract that elicits the plaintiff and the TPF funder - each acting in her own best interest and under asymmetry of information - to make first-best decisions, i.e. the same decisions as those that would have been made solely by the plaintiff if he had the financial resources to fund the litigation process. 

Second, we address the issue of the information asymmetry between the plaintiff and the TPF funder and demonstrate that the contract that induces first-best decisions also results in truthful information-sharing regarding the value of the litigation claim. 

Finally, from a modeling perspective, in contrast to the traditional approach that assumes that funding decisions must be made at one point in time prior to commencing the litigation process, we model litigation as a sequential process, in which decisions whether to continue the process, or to terminate it, can be made at different stages throughout the duration of the process.