The Regulation of Litigation Funding in Europe: An Application of Principal–Agent Theory

Litigation funding in Europe, and third-party funding (TPF) of litigation in particular, has acquired renewed, and perhaps outsized, significance in recent years as the debate over its importance, benefits and drawbacks has grown. This chapter takes an economic approach and systematically applies agency theory to the relationships found in the question of regulating TPF, the means of funding which is currently receiving the most attention in Europe. Various TPF regulatory initiatives are now emerging at the European Union (EU) level and across European jurisdictions, along with heightened activity from interest groups. Under this chapter’s principal-agent framework, society and interest groups in litigation funding are the principals, whereas the policymaker is the agent. The theory’s explanatory power, insights and predictions are linked with and scrutinised against current developments in the field, in order to determine whether and to what degree they can be of practical significance and supported by real-world evidence. This will underscore the considerations, complexities, potential solutions and further research crucial for the pertinent issue of regulatory decision-making regarding [...]