IDEAS home Printed from https://ideas.repec.org/a/ucp/jlawec/v44y2001i2p549-72.html
   My bibliography  Save this article

Legal Fee Restrictions, Moral Hazard, and Attorney Rights

Author

Listed:
  • Santore, Rudy
  • Viard, Alan D

Abstract

When attorney effort is unobservable and certain other simplifying assumptions (such as risk neutrality) hold, it is efficient for an attorney to purchase the rights to a client's legal claim. However, the American Bar Association Model Rules of Professional Conduct prohibit this arrangement. We show that this ethical restriction, which is formally equivalent to requiring a minimum fixed fee of zero, can create economic rents for attorneys, even though they continue to compete along the contingent-fee dimension. The contingent fee is not bid down to the zero-profit level, because such a fee does not induce sufficient attorney effort. We thereby provide a political economy explanation for these restrictions. Copyright 2001 by the University of Chicago.

Suggested Citation

  • Santore, Rudy & Viard, Alan D, 2001. "Legal Fee Restrictions, Moral Hazard, and Attorney Rights," Journal of Law and Economics, University of Chicago Press, vol. 44(2), pages 549-572, October.
    • Handle: RePEc:ucp:jlawec:v:44:y:2001:i:2:p:549-72
    DOI: 10.1086/322814
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1086/322814
    Download Restriction: Access to the online full text or PDF requires a subscription.
    File URL: https://libkey.io/10.1086/322814?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Dana, James D, Jr & Spier, Kathryn E, 1993. "Expertise and Contingent Fees: The Role of Asymmetric Information in Attorney Compensation," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 9(2), pages 349-367, October.
    2. Halpern, P. J. & Turnbull, S. M., 1983. "Legal fees contracts and alternative cost rules: An economic analysis," International Review of Law and Economics, Elsevier, vol. 3(1), pages 3-26, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kyung Hwan Baik & In‐Gyu Kim, 2007. "Strategic Decisions On Lawyers’ Compensation In Civil Disputes," Economic Inquiry, Western Economic Association International, vol. 45(4), pages 854-863, October.
    2. Bruce, Donald & Santore, Rudy, 2006. "On optimal real estate commissions," Journal of Housing Economics, Elsevier, vol. 15(2), pages 156-166, June.
    3. Kyung Hwan Baik, 2007. "Equilibrium Contingent Compensation in Contests with Delegation," Southern Economic Journal, John Wiley & Sons, vol. 73(4), pages 986-1002, April.
    4. Brad Graham & Jack Robles, 2019. "Attorney fees in repeated relationships," Journal of Economics, Springer, vol. 127(2), pages 99-124, July.
    5. Kyung Hwan Baik & Jong Hwa Lee, 2013. "Endogenous Timing In Contests With Delegation," Economic Inquiry, Western Economic Association International, vol. 51(4), pages 2044-2055, October.
    6. Zamir Eyal & Medina Barak & Segal Uzi, 2014. "Who Benefits from the Uniformity of Contingent Fee Rates?," Review of Law & Economics, De Gruyter, vol. 9(3), pages 357-387, January.
    7. Cotten, Stephen J. & Santore, Rudy, 2012. "Contingent fee caps, screening, and the quality of legal services," International Review of Law and Economics, Elsevier, vol. 32(3), pages 317-328.
    8. Florian Baumann & Tim Friehe, 2012. "Contingent fees meet the British rule: an exploratory study," Public Choice, Springer, vol. 150(3), pages 499-510, March.
    9. Daniel L. Chen, 2015. "Can markets stimulate rights? On the alienability of legal claims," RAND Journal of Economics, RAND Corporation, vol. 46(1), pages 23-65, March.
    10. Andrew F. Daughety & Jennifer F. Reinganum, 2011. "Search, Bargaining, And Agency in the Market for Legal Services," Vanderbilt University Department of Economics Working Papers 1106, Vanderbilt University Department of Economics.
    11. Emons, Winand & Garoupa, Nuno, 2004. "The Economics of US-Style Contingent Fees and UK-Style Conditional Fees," CEPR Discussion Papers 4473, C.E.P.R. Discussion Papers.
    12. Michael McKee & Rudy Santore & Joel Shelton, 2007. "Contingent Fees, Moral Hazard, and Attorney Rents: A Laboratory Experiment," The Journal of Legal Studies, University of Chicago Press, vol. 36(2), pages 253-273, June.
    13. Bradley Graham & Jack Robles, 2014. "Moral hazard and legal services contracts," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 61(3), pages 219-230, September.
    14. Andrew F. Daughtey & Jennifer F. Reinganum, 2010. "Clients, Lawyers, Second Opinions, and Agency," Vanderbilt University Department of Economics Working Papers 1009, Vanderbilt University Department of Economics.
    15. Lim, Byung In & Shogren, Jason F., 2005. "Valuation by conflict," Ecological Economics, Elsevier, vol. 55(2), pages 251-261, November.
    16. Eyal Zamir & Ilana Ritov, 2010. "Revisiting the Debate over Attorneys' Contingent Fees: A Behavioral Analysis," The Journal of Legal Studies, University of Chicago Press, vol. 39(1), pages 245-288, January.
    17. Amy Fanner & Paul Pecorino, 2005. "Dispute Rates and Contingency Fees: An Analysis from the Signaling Model," Southern Economic Journal, John Wiley & Sons, vol. 71(3), pages 566-581, January.
    18. Baik Kyung Hwan, 2008. "Attorneys' Compensation in Litigation with Bilateral Delegation," Review of Law & Economics, De Gruyter, vol. 4(1), pages 259-289, August.
    19. Nuno Garoupa & Fernando Gómez, 2002. "Cashing by the hour: Why large law firms prefer hourly fees over contingent fees," Economics Working Papers 639, Department of Economics and Business, Universitat Pompeu Fabra.
    20. Brad Graham & Jack Robles, 2019. "Attorney fees in repeated relationships," Journal of Economics, Springer, vol. 127(2), pages 99-124, July.
    21. Park Sung-Hoon & Lee Sanghack, 2019. "How Do Risk-Averse Litigants Set Contingent Fees for Risk-Neutral Lawyers?," Review of Law & Economics, De Gruyter, vol. 15(2), pages 1-19, July.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Winand Emons & Nuno Garoupa, 2006. "US-style contingent fees and UK-style conditional fees: agency problems and the supply of legal services," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 27(5), pages 379-385.
    2. Heyes, Anthony & Rickman, Neil & Tzavara, Dionisia, 2004. "Legal expenses insurance, risk aversion and litigation," International Review of Law and Economics, Elsevier, vol. 24(1), pages 107-119, March.
    3. Hyde, Charles E., 2006. "Conditional versus contingent fees: Litigation expenditure incentives," International Review of Law and Economics, Elsevier, vol. 26(2), pages 180-194, June.
    4. Emons, Winand & Garoupa, Nuno, 2004. "The Economics of US-Style Contingent Fees and UK-Style Conditional Fees," CEPR Discussion Papers 4473, C.E.P.R. Discussion Papers.
    5. Winand Emons, 2007. "Conditional versus contingent fees," Oxford Economic Papers, Oxford University Press, vol. 59(1), pages 89-101, January.
    6. Brad Graham & Jack Robles, 2019. "Attorney fees in repeated relationships," Journal of Economics, Springer, vol. 127(2), pages 99-124, July.
    7. Rudy Santore & Alan D. Viard, 1999. "Legal fee restrictions, moral hazard, and attorney profits," Working Papers 9912, Federal Reserve Bank of Dallas.
    8. Brad Graham & Jack Robles, 2019. "Attorney fees in repeated relationships," Journal of Economics, Springer, vol. 127(2), pages 99-124, July.
    9. Gabuthy, Yannick & Peterle, Emmanuel & Tisserand, Jean-Christian, 2021. "Legal Fees, Cost-Shifting Rules and Litigation: Experimental Evidence," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 93(C).
    10. Lorenzo Sacconi, 2011. "The case against lawyers’ contingent fees and the misapplication of principal-agent models," European Journal of Law and Economics, Springer, vol. 32(2), pages 263-292, October.
    11. Michael McKee & Rudy Santore & Joel Shelton, 2007. "Contingent Fees, Moral Hazard, and Attorney Rents: A Laboratory Experiment," The Journal of Legal Studies, University of Chicago Press, vol. 36(2), pages 253-273, June.
    12. Nuno Garoupa & Fernando Gómez, 2002. "Cashing by the hour: Why large law firms prefer hourly fees over contingent fees," Economics Working Papers 639, Department of Economics and Business, Universitat Pompeu Fabra.
    13. Péter Eso & Balázs Szentes, 2004. "The Price of Advice," Discussion Papers 1416, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    14. Péter Eső & Balázs Szentes, 2007. "The price of advice," RAND Journal of Economics, RAND Corporation, vol. 38(4), pages 863-880, December.
    15. Frank H. Stephen, 2013. "Lawyers, Markets and Regulation," Books, Edward Elgar Publishing, number 14803.
    16. Sung-Hoon Park & Chad E. Settle, 2023. "Asymmetric Reimbursement and Contingent Fees in Environmental Conflicts: Observable vs. Unobservable Contracts," Games, MDPI, vol. 14(4), pages 1-10, July.
    17. Ayouni, Mehdi & Friehe, Tim & Gabuthy, Yannick, 2024. "Bayesian persuasion in lawyer–client communication," International Review of Law and Economics, Elsevier, vol. 78(C).
    18. Cotten, Stephen J. & Santore, Rudy, 2012. "Contingent fee caps, screening, and the quality of legal services," International Review of Law and Economics, Elsevier, vol. 32(3), pages 317-328.
    19. Landeo, Claudia M. & Nikitin, Maxim, 2018. "Financially-constrained lawyers: An economic theory of legal disputes," Games and Economic Behavior, Elsevier, vol. 109(C), pages 625-647.
    20. Kyung Hwan Baik & In‐Gyu Kim, 2007. "Strategic Decisions On Lawyers’ Compensation In Civil Disputes," Economic Inquiry, Western Economic Association International, vol. 45(4), pages 854-863, October.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ucp:jlawec:v:44:y:2001:i:2:p:549-72. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Journals Division (email available below). General contact details of provider: https://www.journals.uchicago.edu/JLE .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.