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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.

Suggested Citation

  • 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.
  • Handle: RePEc:eee:irlaec:v:32:y:2012:i:3:p:317-328
    DOI: 10.1016/j.irle.2012.06.001
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. 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.
    2. 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.
    3. 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.
    4. Baumann, Florian & Friehe, Tim, 2014. "On discovery, restricting lawyers, and the settlement rate," DICE Discussion Papers 155, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    5. Deffains, Bruno & Desrieux, Claudine, 2015. "To litigate or not to litigate? The impacts of third-party financing on litigation," International Review of Law and Economics, Elsevier, vol. 43(C), pages 178-189.

    More about this item

    Keywords

    Contingent fees; Caps; Attorney quality; Experiments;

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • K4 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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