ABSTRACT
Consumer litigation funding (CLF) provides non-recourse cash advances to consumer plaintiffs pursuing a tort complaint. This paper examines how access to this funding impacts outcomes in the legal system. Using exogenous variation in access to CLF resulting from staggered state-level law changes in the US, I show that restricting CLF causes a decline in the number of tort lawsuits filed in court by 18.7 %. I further show that restricting CLF increases the civil lawsuit plaintiffs’ win rate at trial by 5.9% but does not change the probability of lawsuits going to trial. Such evidence suggests that access to CLF either incentivizes plaintiffs to be more risk seeking in filing lawsuits that are less likely to be successful in the courts or induces plaintiffs to exert less effort during the trial process.
Dong, Mengming (Michael), Consumers’ Financial Constraints, Lawsuit Decisions, and the Civil Justice System (January 24, 2022).
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