Two Cheers for Contingent Fees by Alexander Tabarrok

By Alexander Tabarrok

If the United States is a lawsuit hell, then contingent-fee legal professionals are frequently thought of its devils. Contingent charges were referred to as unwarranted and the attorneys who settle for them were denounced as unethical and uncivilized. in addition, in the middle of elevated filings and escalating awards, it's tough to not realize that a few plaintiffs' attorneys became very wealthy. for this reason, tort reformers have referred to as for limits on contingent charges and lots of states have obliged. yet limits were enacted with none proof that contingent charges have been both liable for the legal responsibility obstacle or that restricting them might produce merits. This research, one of many first empirical examinations of contingent-fee limits, reveals that contingent charges gain plaintiffs and don't reason larger awards. additionally, contingent-fee limits are not going to minimize attorneys' source of revenue greatly, when you consider that they are going to easily change to hourly charges. given that hourly expense legal professionals are keen to take extra instances to court docket than contingent-fee legal professionals, contingent-fee limits can bring up the variety of low-value junk fits. Tort reform is a crucial objective, yet restricting the contractual rights of plaintiffs and their legal professionals is an unattractive and certain useless approach to attaining that target. The AEI's legal responsibility reviews learn points of the U.S. civil legal responsibility method significant to the political debates over legal responsibility reform. The target of the sequence is to give a contribution new empirical proof and promising reform principles which are commensurate to the seriousness of America's legal responsibility difficulties. Alexander Tabarrok is an affiliate professor of economics at George Mason collage and director of study for the autonomous Institute. Eric Helland is an affiliate professor of economics at Claremont McKenna collage, a senior economist on the RAND Corporation's Institute for Civil Justice, and a member of the plenary school on the Claremont Graduate institution.

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887 (HR 1926). 11. See, for example, Eric Helland and Alexander Tabarrok, “The Effect of Electoral Institutions on Tort Awards,” American Law and Economics Review 4, no. 2 (1999): 341–70; and Eric Helland and Alex Tabarrok, “Race, Poverty, and American Tort Awards: Evidence from Three Datasets,” Journal of Legal Studies 32, no. 2 (2003): 27–58. 12. ID=554; last accessed June 20, 2005. Walter E. , July 31, 2002. 13. S. S. , February 18, 2005. 14. Eric Helland and Alexander Tabarrok, “Contingency Fees, Settlement Delay, and Low-Quality Litigation: Empirical Evidence from Two Datasets,” Journal of Law, Economics and Organization 19 (2003): 517–42.

Research on these questions would be very valuable. 18. For an analysis see Winand Emons and Nuno M. Garoupa, “The Economics of US-Style Contingent Fees and UK-Style Conditional Fees” (Center for Economic and Policy Research, Discussion Paper No. asp (accessed April 27, 2005). For more on contingent fees as a device to increase effort see Murray L. Schwartz and Daniel J. B. Mitchell, “An Economic Analysis of the Contingency Fee in Personal-Injury Litigation,” Stanford Law Review 22 (1970): 1125–62; Patricia M.

After a case has been settled or concluded, contingent fees may appear large relative to the number of hours a lawyer has put into that particular case. But the fee needs to be evaluated ex ante—that is, before the case begins. By way of a simple example, assume that there is a 50 percent probability a case will be won and, if won, a certainty that damages will be equal to $15,000. Assume that the contingent fee is set at one-third, and that the lawyer puts ten hours of work into the case. If the case is won, the lawyer receives $5,000, or $500 per hour—quite a high hourly fee.

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