Give the Lawyer his Cut

The latest issue of Forbes (Oct. 3) has an article by myself on contingent fees.  (It’s based on a short AEI book, Two Cheers for Contingent Fees with Eric Helland). 

Contrary to popular argument, contingent fees serve a social purpose.  A lawyer paid by contingent fee will only take those cases that have a decent probability of winning – thus contingent-fee lawyers act as screeners, saving the court system and everyone else the trouble of examining frivolous cases.  That’s right, contingent-fee lawyers reduce the number of frivolous cases!  When contingent fees are restricted, lawyers naturally turn to alternatives such as charging by the hour.  But a lawyer paid by the hour has little incentive to screen.  Helland and I find evidence consistent with the screening function of contingent fees.

In states that restrict contingent fees,
plaintiffs dropped 18% of cases before trial without getting a
settlement. In states where lawyers were free to take their usual 33%
cut, they dropped only 5% of cases. This tells us that lawyers had
already screened out the junk suits and were pursuing those with merit.

Our study also shows that the time to
settlement in medical malpractice cases is 22% longer in states that
restrict contingent fees. In Florida, in the 300 days after contingent
fees were restricted in 1985, settlement time increased by 13%. Why?
When lawyers are paid by the hour, they have little incentive to settle
quickly.

By the way, one of the fun things about doing an article for Forbes is that they always send out a professional photographer – which for an academic like me can be quite a thrill as they really do primp and preen over you.

Turn to the right, oh yes, that’s it, hold it, hold it, Great!  The camera loves you!  Now lean back a little, good, good, good.  Be like a Cheetah, a Cheetah.  No a Lion, yes, a Lion.  Hold it, Hold it.  Yes.  Wonderful!  Wonderful!

I exaggerate, but it was fun.  Unfortunately, the photo is not online so you will have to go to the newsstand to see the result. It’s arty, but I’d say they captured the lion.  Yeah, baby.