To litigate or not to litigate? The impacts of third-party financing on litigation

In this paper, we analyze three different ways to finance litigation, namely (i) self-finance by plaintiffs, (ii) contingent fees arrangements and (iii) third-party financing. We show how they impact the access to justice, and the decision to settle or to go to court, when claims can be meritorious or frivolous. Our results show that third-party financing does not always increase the access to justice for a plaintiff, and may even decrease the equilibrium settlement amount. It also increases the number of frivolous claims.