STRUCTURING A LEGAL CLAIMS MARKET TO OPTIMIZE DETERRENCE

Jurisdictions have been liberalizing rules surrounding third-party litigation funding or the buying and selling of legal claims since the early twentieth century. Scholars have generally supported liberalization, seeing it as a way to expand access to courts and allow for the more efficient allocation of risk. Opponents have warned about a surge in frivolous litigation and strategic behavior by funders. But both sides have ignored how interrelated the rules governing third-party investment in litigation and the alienability of legal claims are, and how they interact to affect a legal claims market. The focus on reform should be to adjust these rules to create the optimal legal claims market. Instead, reform has increasingly focused on liberalizing third-party investment while keeping rules around alienability the same, or even barring investors from exercising control over the suit. This risks creating new problems without effectively solving many of the issues reform is meant to solve. This incremental approach comes with real costs, and may actually prevent a well developed legal claims market from developing.