[Researcher of the Month] Calculating the Effects of the English Rule and American Rule
Professor Yoon Jung-mo (Professor, Department of Economics & Finance)
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Have you ever lost a lawsuit? There are two ways to resolve the financial issues concerning legal costs after the resolution. The first method is called the English Rule, where the loser of a lawsuit pays the winner’s legal fees. The other one is the American Rule, where each party handles their own legal cost. Since the 1990s, there has been a general consensus among economists that the former improves the quality of a lawsuit and reduces trial costs. Yoon Jung-mo (Professor, Department of Economics & Finance) was the one to propose the question, ‘is it really?’ in his recent article, ‘Estimating the Effects of the English Rule on Litigation Outcomes.’
Every government aims to reduce the number of lawsuits, especially Korea and the United States. The increased number of court cases lead to increased government and societal spending on legal institutions and its personnel. The key to amend such issues is to reduce the real number of law suits to alleviate the burden of the court and increase the case quality, which is determined by the chance of a plaintiff winning the case and the amount of the settlement. Therefore, according to the long research in the economics field that concluded the English Rule, a lot of people argue for the rule. Currently, Korea is running based on the American Rule, but the law limits the amount of money that can be covered by the loser of the case. The prevalent textbook conclusion is mostly derived from the comparison of the Florida case, where they switched from the American Rule to the English Rule in 1980 and then flipped back in 1985. Because measuring the economic impact of a legal system can sometimes look like comparing apples to oranges, the case of Florida provided the perfect background for legal economists to analyze the impact.
Yoon mentioned that there are two main significances that the paper proposes. First is that there are more proofs accumulated after the 1990s when the consensus was initially made. The initial paper studies the cases before 1980 and cases between 1980 to 1985. However, it neglected the cases after the second change of the rule, which could have critical impact to the interpretation. Also, Yoon and his co-author implemented a new way of making a conclusion. Traditionally, the economic impact is measured and reported as a fixed number. However, this cannot entail all the complex probabilities behind the result. Using the bound analysis method, researchers can predict the best and worse case scenarios and give a range of possible influences. The second significance is that Yoon and his co-author took the cases that were settled during the process into account. As only a few litigations continue to the very end of the judicial process, it is very important to consider the changed behavior of people according to the increased or decreased amount of pressure resulting from the verdict.
Yoon’s scrutinized analysis, however, contradicts what has been believed for a long time. When it comes to the trial outcomes, the range derived from the bound analysis does not signify any relevance between the change of legal system and the trial cost. It does increase the amount of settlement, while decreasing the number of settled cases.
“The hardest part of continuing such rigorous research was to overcome the constant skepticism,” said Yoon. According to him, it takes a long time for a researcher to complete a paper and for the paper to be accepted in a journal or presented in a conference. Believing in himself and moving forward regardless of the incredulity, Yoon will continue further to conduct research.
Kim So-yun firstname.lastname@example.org
Photos by Kang Cho-hyun
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