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Contingent fee caps, screening, and the quality of legal services

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  • Cotten, Stephen J.
  • Santore, Rudy

Abstract

In theory, contingent fees can reduce the effects of informational asymmetries by allowing clients to screen low-quality attorneys who obtain smaller awards in expectation. We experimentally examine whether clients possess the sophistication necessary to design screening contracts and how contingent fee caps affect a client's ability to screen. When contingent fees are unrestricted, we find that most subjects are able to design contracts that screen low-quality attorneys, resulting in an increase in the quality of legal services. However, we find that contingent fee caps decrease the frequency of screening even if the cap is non-binding. Caps on contingent fees also reduce clients’ ability to extract surplus, allowing attorneys to earn greater profits.

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Bibliographic Info

Article provided by Elsevier in its journal International Review of Law and Economics.

Volume (Year): 32 (2012)
Issue (Month): 3 ()
Pages: 317-328

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Handle: RePEc:eee:irlaec:v:32:y:2012:i:3:p:317-328

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Web page: http://www.elsevier.com/locate/irle

Related research

Keywords: Contingent fees; Caps; Attorney quality; Experiments;

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Cited by:
  1. 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.

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