More on Contingent Fees

The ABA Journal Report has an article on my study of contingent fees (with E. Helland).  I liked this:

"I’m actually a proponent of tort reform," Tabarrok says. "But I also believe in freedom of contract. What some reformers propose interferes with how plaintiffs reward their attorneys, and when I see interference with contract, I want there to be a high bar before it’s allowed.

The funniest line, however, was this:

Critics dispute the authors’ fundamental assumption that restrictions on contingent fees increase the incentive of lawyers to charge hourly fees. Despite Tabarrok’s assertion that the assumption is "trivial economics" and that "no economist would disagree with it," economists and legal scholars do.

Imagine that tips for waiters were banned.  What would happen to wages?  They would increase.  No big surprise but apply the same idea to lawyer contingent fees and we get lots of objections. 

I'm not fixated on the critics, however, because the main results of the paper are empirical.  When contingent fees are restricted the number of dropped cases increases as does the time to settlement.  The theory that this occurs because lawyers are shifting toward hourly fees is consistent with the empirical findings but there could be other explanations as well.