Opening Statements

Tort Reform's Human Touch

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Cost-shifting statutes won’t cure Amer­ica’s ailing tort system, and the time and attention spent on them is probably of little value. That’s what economics researchers Kevin McCabe and Laura Inglis found when they tested the effects of the English Rule and a California settlement rule in the human behavior lab.

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.”

While he says a next research step could be conducting pilot experiments to gauge the effectiveness of cost-shifting at a state and national level, “our studies suggest those types of changes to the law are overrated and that we won’t see much of an effect.”

This spring, McCabe will present these findings and other results from related, ongoing law-and-economics lab work at the Eco­nom­ics Institutes for Judges program at the Brookings Insti­tution in Wash­ington, D.C. He’ll cite the results as support for his contention that the tort system would be best fixed by changing how the process is used—for example, implementing mandatory pretrial meetings and offering structured arbitration—rather than by adopting alternative models like the English Rule.

“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,” he says. “I don’t think changes to the process itself will have dramatic improvements. It’s just wishful thinking and special-interest thinking.”

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