Louis Visscher

A Law and Economics View on Harmonization of Procedural Law

Even though there exists an extensive Law and Economics literature on the topics of procedural law and harmonization of law, very little has been written on harmonization of procedural law as such. In this paper I first provide a brief overview of the economic approach to legal intervention, private enforcement and procedural law. Subsequently, I discuss the economics of harmonization of (substantive) private law. The traditional legal arguments in favor of harmonization (differences in legal rules between countries result in legal uncertainty and increased costs and therefore hinder cross-border trade, and harmonization would create a level playing field) turn out to be unconvincing. The economic analysis of law provides several arguments against harmonization (regulatory competition enables satisfying a larger number of preferences, it enables learning effects, (centralized) legislators suffer from limited information and the possible influence of interest groups should be taken into account) and in favor of it (the need to internalize interstate externalities, the desire to avoid a race to the bottom, decreasing transaction costs and profiting from economies of scale). These arguments have to be weighed in order to reach a conclusion on the desirability of harmonization. Such a weighing shows that there is, at best, a limited scope for harmonization of procedural law (and then only as an additional option). Harmonization would remove the possible learning effects and does not allow satisfying a larger number of preferences. The possible arguments in favor of harmonization of procedural law seem week, especially now procedural law is closely connected to the underlying substantive law. The only potentially strong argument is the reduction of transaction costs. It is ultimately an empirical matter if this argument outweighs the arguments against harmonization. The 2008 Oxford Civil Justice Survey in my view suggests that this is not the case.

Economic Analysis of Punitive Damages

Many lawyers regard compensation as the most important goal of tort law. However, in the words of Williams, “this... does not look below the surface of things. Granted that the immediate object of the tort action is to compensate the plaintiff at the expense of the tortfeasor, why do we wish to do this?... An intelligent approach to the study of law must take account of its purpose.”1 Keeton argues that the primary function of tort law is not to compensate the losses, but to determine when compensation is required.2 A similar argument is made by Fleming and Rogers.3 Losses of the victim are only shifted to the tortfeasor if there are reasons to do so. These reasons can be found in the goals of tort law.

New Trends in Financing Civil Litigation in Europe

Contents: 1. Introduction Mark Tuil and Louis Visscher 2. A Law and Economics Approach to Cost Shifting, Fee Arrangements and Legal Expense Insurance Louis Visscher and Tom Schepens 3. No Cure, No Pay and Contingency Fees Michael Faure, Fokke Fernhout and Niels Philipsen 4. Financing and Group Litigation Sonja Keske, Andrea Renda and Roger van den Bergh 5. Financing Civil Litigation by the European Insurance Industry Willem H. van Boom 6. Financing Civil Litigation: The Case for the Assignment and Securitization of Liability Claims Andrea Pinna 7. The Empirical Analysis of Litigation Funding Paul Fenn and Neil Rickman 8. Financing Civil Litigation: The US Perspective Deborah R. Hensler 9. New Trends in Financing Civil Litigation in Europe - Lessons to be Learned Mark Tuil and Louis Visscher Index

New Trends in Financing Civil Litigation in Europe: Lessons to be Learned

This unique and timely book analyses the problem of financing civil litigation. The expert contributors discuss the legal possibilities and difficulties associated with several instruments – including cost shifting, fee arrangements, legal expense insurance and group litigation.

Subsidized buyer credits: Atypical results in strategic trade theory

Using subsidized buyer credit as a policy tool, it is shown that the general result of strategic trade policy, namely that, by committing itself to an export subsidy, any government can favorably change the outcome of the Cournot oligopoly, does not necessarily hold.

Quality Adjusted Life Years as a Way Out of the Impasse between Prevention Theory and Insurance Theory

IIn a previous paper we have argued that tort law can benefit from the use of Quality Adjusted Life Years (QALYs) in assessing pain and suffering damages for personal injuries. In the current paper we pose that QALYs may be able to solve a problem which exists in the economic analysis of this area of law. The question whether a tortfeasor should compensate non-pecuniary losses is not answered unambiguously in Law and Economics, as shows from the debate between the prevention theory (which argues that the injurer should be liable for immaterial losses) and the insurance theory (which argues that the victim should not receive compensation for such losses). In our view, QALYs are able to bridge the gap between these two theories. They provide a framework for the assessment of pain and suffering damages for personal injuries, which is based on the impact of the health impairment on the victim. This is important for the (primarily legal) objective to provide adequate compensation to the tort victim, and for the (primarily Law and Economics) goal to provide adequate deterrent incentives.A QALY expresses the value of living one year in a certain health condition. Health Economics literature enables assessing the impact of different health conditions on the quality of life. By subsequently monetizing QALYs, this impact is expressed in monetary terms, which provides a non-arbitrary basis for pain and suffering damages. This is not only relevant within the domain of Law and Economics, but it also allows a more systematic assessment of pain and suffering damages than the current legal approach, which lacks a framework to assess the correctness of the damages. In addition, in our view QALYs are able to deal with adaptation.By way of illustration, we compare pain and suffering damages in several European countries with the amounts that would result from a conservative estimation of the monetary value of a QALY for specific types of personal injuries. We show that the amounts that are currently awarded are too low, both from a legal compensation as from an economic incentives point of view.

Third Party Financing and its Alternatives: An Economic Appraisal

In this contribution we provide an economic approach to third party funding. We first explain why third party funding emerges. It can be considered as a remedy for the market failure that can occur in cases of so-called dispersed losses where rational apathy may occur, and also when individuals do not bring claims solely because they do not have sufficient funds. However, we argue that although TPF can help solve market failures, it can create also problems of its own. All the classic economic problems, such as the principal-agent problem, information and transaction costs may jeopardize the effectiveness of TPF. However, we argue that remedies can be designed to increase the effectiveness. We further compare TPF to other mechanisms that could equally cure the market failures, such as legal expenses insurance (LEI) and the transfer of claims. We also briefly compare TPF to contingency fee arrangements, although this is not the central focus of our contribution.

Liability for Unknown Risks: A Law and Economics Perspective

In the law and economics literature liability is generally regarded as an instrument which provides potential tortfeasors with incentives for optimal care taking. The question, however, arises whether liability can still provide those incentives when risks are unknown. That is the central question that is addressed in this contribution. One may, furthermore, have to differentiate between risks that are unknown to the tortfeasor and those are that not known according to the state of the art. After setting out the economic functions of liability rules and regulation the effects of missing information for care levels and activity levels is sketched and attention is paid to the way in which strict liability and negligence affect the incentives to do research concerning unknown risks. We conclude that an exposure to liability may on the one hand provide potential tortfeasors with incentives to do further research and hence to innovate; on the other hand, liability for unknown risks could also limit activity levels of socially desirable activities. We therefore conclude that it remains inherently difficult to use tort law as an instrument to provide incentives to generate information concerning unknown risks. We argue that in the tradeoff between tort liability and safety regulation there are strong arguments in favour of safety regulation, on the condition that it is used in a smart mix with liability rules. Finally, we equally investigate problems that arise in case of insurance of liability for unknown risks.

Liability for unknown risks : A law and economics perspective

In the law and economics literature liability is generally regarded as an instrument which provides potential tortfeasors with incentives for optimal care taking. The question, however, arises whether liability can still provide those incentives when risks are unknown. That is the central question that is addressed in this contribution. One may, furthermore, have to differentiate between risks that are unknown to the tortfeasor and those are that not known according to the state of the art. After setting out the economic functions of liability rules and regulation the effects of missing information for care levels and activity levels is sketched and attention is paid to the way in which strict liability and negligence affect the incentives to do research concerning unknown risks. We conclude that an exposure to liability may on the one hand provide potential tortfeasors with incentives to do further research and hence to innovate; on the other hand, liability for unknown risks could also limit activity levels of socially desirable activities. We therefore conclude that it remains inherently difficult to use tort law as an instrument to provide incentives to generate information concerning unknown risks. We argue that in the tradeoff between tort liability and safety regulation there are strong arguments in favour of safety regulation, on the condition that it is used in a smart mix with liability rules. Finally, we equally investigate problems that arise in case of insurance of liability for unknown risks.

The Role of the Expert Witness

The utility of expert epidemiologic testimony on causation is presented in this chapter, based on the historical perspective of law and economics and the inherent uncertainty in all causal determinations. The utility, benefits, and drawbacks of a 50% probability threshold versus a proportional liability approach to causation are discussed. Types of bias and sources of error potentially present in expert testimony are also presented, as well as judicial remedies to excessively flawed expert testimony.