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Legal Fee Restrictions, Moral Hazard, and Attorney Rights

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  • 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.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Law & Economics.

Volume (Year): 44 (2001)
Issue (Month): 2 (October)
Pages: 549-72

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Handle: RePEc:ucp:jlawec:v:44:y:2001:i:2:p:549-72

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Web page: http://www.journals.uchicago.edu/JLE/

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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.
  2. Winand Emons & Nuno Garoupa, 2004. "The Economics of US-style Contingent Fees and UK-style Conditional Fees," Diskussionsschriften dp0407, Universitaet Bern, Departement Volkswirtschaft.
  3. 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.
  4. 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.

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