Asymmetric reimbursement system in an environmental conflict

Abstract

This article explores how a fair-minded regulator has to set policy through an asymmetric reimbursement. The lawyer for a citizen group works on a contingent-fee basis, whereas a polluting firm has either in-house legal advice or lawyers on retainer. Under an asymmetric reimbursement rule we show: (i) the case goes to settlement if the objective merits of the case favour the citizen group; (ii) whereas it goes to trial, the probability winning the citizen group has is less than 50%, and the reimbursement policy incurs the total effort in trial to increase if the merits of the case favour the firm.

Acknowledgement

The author wishes to thank Jason Shogren for helpful discussions.