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McCabe: Effect of Cost-shifting Statutes Overrated

Testing the effects of the English Rule and a California  settlement rule in the human behavior lab, Professor of Economics and Law Kevin McCabe and research scientist Laura Inglis concluded that the time and money being spent on cost-shifting statutes is probably of little value.

McCabe and Inglis tested how applying the two cost-shifting measures affected agreement in staged pretrial settlements. McCabe remarked that "our studies suggest those types of changes to the law are overrated and that we won't see much of an effect."

"So far in the lab what we're finding is that probably the most important changes to the law are the changes that overcome the breakdowns when people meet face to face," McCabe said. "I don't think changes to the process itself will have dramatic improvements. It's just wishful thinking and special-interest thinking."

McCabe will present these and other results from related work at the Economics Institutes for Judges program at the Brookings Institution in Washington, DC, this spring.

Tort Reform's Human Touch, ABA Journal, April 2008. By Jenny B. Davis.

Excerpt:
"In their study, Using Economics Experiments to Evaluate Tort Reform Proposals, issued by George Mason Uni­ver­sity’s Mercatus Center last November, the pair tested, in part, how applying the two cost-shifting measures influenced how often subjects reached agreements in staged pretrial settlements.

"Playing the lawyer roles were eight undergrads divided into two groups—plaintiff and defense. Opposing counsel were then paired off and asked to come to a monetary agreement in four abstract cases, meaning they were given no facts, just numbers: the settlement range of such cases and a figure indicating the credibility of the case. McCabe, a professor of economics and law at George Mason, and Inglis, a research scientist specializing in tort reform issues at the university’s Center for the Study of Neuroeconomics, then changed the settlement situations in each case to test different litigation theories.

"When they applied the California Code of Civil Procedure § 998, which charges court costs to parties judged to have refused meritorious pretrial settlement offers, students settled their cases at a rate about equal to that of cases negotiated when both parties bore their own costs. And when they applied the stricter English Rule, which requires the losing party to pay the court costs of both sides, settlements dropped as much as 20 percent.

"What this shows, McCabe says, is that 'these various attempts to shift the burden of costs around in a way that should encourage people to settle did no such thing.'"

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