Category: Law
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.
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.
Sexual Healing
The Danish government pays for the disabled and elderly to watch porn and have sex with prostitutes.
Caregivers in Copenhagen have found that pornography and prostitutes
have a greater calming effect on their elderly patients than
traditional medical treatment such as drug therapy.Staff at the Thorupgaarden nursing home in the Danish capital have
been broadcasting pornography on the building’s internal videochannel
every Saturday night for several years. And if videos and dirty
magazines don’t relieve the tension, residents can ask the staff to
order a prostitute for them.The caregivers have told Danish media that pornography is healthier,
cheaper and easier to use than medicine, Lars Elmsted Petersen, a
spokesman for the Danish seniors’ lobby group Aeldresagen, said.Earlier this year, the Danish government released a report stating
that sexuality is an integral part of life for the elderly and the
disabled. It recommended that caregivers help elderly residents satisfy
their sexual needs.
All this sounds very reasonable to me. My only objection? Government intervention could lead to shortages.
Blackwater in New Orleans
Private security firms are stepping into the vacuum created by the failure of the government to protect life and property in New Orleans.
The Steele Foundation, headquartered in San Francisco, was called in
by several major corporate clients to the inundated city where local
police are scarce and food, water or fuel has yet to arrive from the
federal government."At this point, all of our efforts are focused on providing physical
security for people who are trapped as well as providing humanitarian
relief," said Kenn Kurtz, chief executive officer of the Steele
Foundation. The company is looking after clients with hotels and holed
up employees and their families, some with urgent medical needs."Right now these people are alone…there is no military presence in downtown New Orleans," he said.
The Steele Foundation, which at one time protected Haiti’s president
Jean Bertrand Aristide and operates in Iraq, specializes in business
risk consulting, protective security work and training.The company has set up a mobile command post in downtown New Orleans
and its clearly-identified security teams are armed but mostly with
non-lethal ammunition, Kurtz said. Some 16,000 military rations,
bottled water as well as fuel have been brought in but looters have
attacked the company’s vehicles."We can’t get fuel into many places because it’s too dangerous to travel," Kurtz.
Blackwater USA is sending about 50 employees to the Gulf region
along with a transport helicopter and two cargo planes, according to
spokeswoman Anne Duke. The security company has offered to help the
Coast Guard with pro bono rescue work and is working with
private-sector firms to help protect infrastructure and cultural
buildings in the city, she said."I definitely don’t think Blackwater would have been contacted if it
wasn’t a serious situation," said Duke. She declined to detail who the
company is working for in the area.Blackwater, which draws on former military and law enforcement personnel, has taken on some very high-profile tasks in Iraq.
No Pain Relief for Tort Sufferers
James Hamilton takes a look at one of the key studies on Vioxx and heart attacks. He is not greatly impressed.
I took a look at one of the studies on which the decision was
justified, written by Dr. David Graham and co-authors and published in Lancet
in February. This study looked at 8,143 Kaiser Permanente patients who
had suffered a heart attack and had also at some point taken a
nonsteroidal anti-inflammatory drug (NSAID), of which Vioxx (rofecoxib)
is one. Of these patients, 68 were taking rofecoxib while 4,658 were
receiving no medication at the time of their heart attack, a ratio of
(68/4658) = 1.46%. For comparison, the study looked at 31,496 other
patients who had also at some point taken an NSAID, matched for
characteristics like age and gender with the first group, but who
didn’t have a heart attack. The ratio of rofecoxib users to those with
no current medication was slightly lower (1.05%) in this second group,
which one might summarize as a (1.46/1.05) = 1.39-fold increase risk of
heart attack from taking rofecoxib compared to no NSAID. Is that
statistically significant, in other words, can you rule out that you’d
see a difference of that size just by chance? Yes, the study claimed,
but just barely.On the other hand, this was not a controlled experiment, in which
you give the rofecoxib randomly to some patients and not others in
order to see what happens. Rather, something about either these
patients or their doctors led some of them to be using rofecoxib and
others not. Dr. Graham and co-authors looked at a variety of indicators
that suggested that the rofecoxib patients already had slightly
elevated risk factors for coronary heart disease. Once they controlled
for these with a logistic regression, their study found an elevated
risk factor of heart attack for rofecoxib takers of 1.34, which was not
statistically significantly distinguishable from 1.0.The strongest evidence from this study was a claimed dose-effect
relation. Of these 68 rofecoxib-using heart-attack patients, 10 of them
were taking doses above 25 mg per day. Only 8 patients in the much
larger control group were taking so high a dose, implying an elevated
risk factor of 5 to 1 for high-dose patients. Again observable risk
factors could explain some of this, with the conditional logistic
regression analysis bringing the implied drug-induced risk down to 3 to
1. According to the study, this elevated risk factor was still
statistically significant, even though the inference is based on the
experience of just 10 patients.The obvious question here is whether in fact the authors were able
to observe all the relevant risk factors. The study openly acknowledged
that it did not, missing such important information as smoking and
family history of myocardial infarction.…[E]ven if
there actually is an elevated risk of the magnitude the studies suggest
but can’t prove, the question is whether I might want to accept a 1 in 4,000 risk of dying from a heart attack in order to get the only medication timt makes my pain bearable and a mobile life livable. And if I say no to the Vioxx, I may end up taking something that is less effective for my pain but has risks of its own.…. How did we arrive at a
system in which 12 random Texans are assigned responsibility for
evaluating the scientific merits of statistical evidence of this type,
weighing the costs and benefits, and potentially sending a productive blue-chip American company into bankruptcy protection?
See also my op-ed Bringing the Consumer Revolution to the FDA.
The Virtues of Judicial Independence
I worry when conservatives rail against out-of-control judges. Who else but an independent judge can smack-down out-of-control bureaucrats and politicians like this?
Evil Kelo
The Kelo v. New London eminent domain case started five years ago when New London condemned a number of buildings, including the lifelong home of one 87 year old resident. The residents took the case to court and, of course, lost. Now get this. The city is claiming that since the original seizure was legal the residents have been living on city property for five years and thus owe back rent.
Namesake Susette Kelo, who owns a single-family house with her husband,
learned she would owe in the ballpark of 57 grand. "I’d leave here
broke," says Kelo. "I wouldn’t have a home or any money to get one. I
could probably get a large-size refrigerator box and live under the
bridge."
Thanks to David Theroux for the pointer.
Accident compensation in New Zealand
Get this:
New Zealand has a comprehensive no-fault insurance scheme administered by the Accident Compensation Commission (ACC). The scheme applies to all injuries incurred in New Zealand regardless of the injured person’s country of residence. Under the ACC scheme it is generally not possible to sue for damages due to an accident. To pay for the ACC scheme, levies are payable by all New Zealand resident employers, employees and self-employed contractors.
In other words, instead of being able to sue another party, you get a piddly payment from the government. Here is material on the history of ACC. Here are more details, along with accident statistics. You can buy a law review issue on ACC. Here is one criticism of ACC, from a market-oriented point of view. It is, after all, government monopolization of the accident insurance market. On the other hand, it keeps down lawyers’ salaries.
Here is further information on the safety of bungee jumping.
Addendum: Libertarians who hold great faith in market mechanisms of reputation might favor this system over strict liability. Consumers could still patronize a high-reputation, high safety bungee-jumping firm, if they wished to, thereby replicating strict liability outcomes. But other consumers could opt for the "I don’t mind not being able to sue you, anyway I know you otherwise wouldn’t exist and I love risk" kind of ride. Of course this split will work better for contractual relations than for road accidents.
New Zealand regulations which no longer exist
1. Horses and cows could not mate within sight of public roads (this remained on the books until 1950)
2. Until the mid-1970s, you could not buy margarine without a doctor’s prescription.
3. Nabokov’s Lolita was banned.
4. School milk was free, but you had to drink it.
Those are from James Belich’s insightful Paradise Reforged: A History of the New Zealanders from the 1880s to the Year 2000. Today, of course, New Zealand is one of the least heavily regulated OECD countries.
In Defense of Mercenaries
The Gurkhas have been active in the British military since 1817 but they are not British citizens they are Nepalese hired by the British. In recent years the Gurkha brigades have served in the Falklands, Kosovo, Afghanistan and now Iraq. The Indian army and Singaporean police force also hire many Gurkhas.
The Gurkhas are unusual but not unique. The United Arab Emirates, where Tyler is now, relies almost exclusively on mercenaries. The French Foreign Legion continues to attract a small number of mercenaries from around the world. During the Vietnam war the United States paid the South Korean, Philippine and Thai governments for the use of troops – these were mercenaries paid by proxy.
Should we hire more mercenaries today? Our military already has hired more than thirty thousand non-citizens. Why not bypass residency entirely and go straight to Mexico, India and elsewhere to hire soldiers? If outsourcing is good for US firms then surely it is good for the US government.
Outsourcing the military has a number of advantages. The supply of labor is nearly limitless and the price is low. Some people will object that quality is low too but if Indians can be trained to do US tax returns they can be trained to fight US wars.
One reason the Gurkhas are among the most highly regarded troops in the world is that the entrance exam is extremely difficult – only 1 in 30 applicants makes the cut. The British can pick and choose because wages are high relative to the next best alternative (the Indian army picks up many of the British rejects). Meanwhile, we are so desperate for troops in the United States that we are forcing old men and women, people who haven’t seen active duty in forty years, back into service. At US wage rates we could easily hire many thousands of Mexicans. Many Mexican noncitizens are already
serving honorably in the US military so there is no reason for quality to decline.
Mercenarism may seem unusual today but in the 18th century a typical European army contained 20-30 percent
foreign troops – mercenarism was the norm. It’s hard to see how the United States has a comparative advantage in military labor so the future may resemble the past more than it does the present.
Comments are open.
Wikipedia on Roberts
Here is a detailed biographical and intellectual profile (his wife it seems was in a feminist pro-life group), thanks to the interesting atlblogs.com for the pointer. This same blog tells us Eminem may be bowing out as a rapper…
John Roberts
A Googling of "Judge John Roberts economics" turns up little real, his paper trail is thin. Here are the useful Scotus links. The very smart Juan Non-Volokh likes him. He is a member of The Federalist Society. The Washington Post reports:
On the D.C. Circuit, Roberts voted with two colleagues to uphold the arrest and detention of a 12-year-old girl for eating french fries on a Metro train, though his opinion noted, "No one is very happy about the events that led to this litigation." In another case, Roberts wrote a dissenting opinion that suggested Congress might lack the constitutional power to regulate the treatment of a certain species of wildlife.
And Tradesports.com nailed it one hour in advance, read more here.
Social Morass
I am lecturing this week in Liberia on the importance of economic institutions that foster growth. I’ll talk about property rights, free trade, monetary stability, etc. However, there is a significant issue that Liberia (and most developing nations) need to overcome before these institutions can be effective: corruption.
In Liberia, there seems to be no stigma attached to bribe solicitation, even of the most heinous variety. For example, customs agents at Roberts International Airport showed no shame whatsoever in extorting bribes from us upon our arrival into Liberia last year. I explained to the agent that our (legal) cache of baby formula and Pepto-Bismol was for orphaned children, and that it had the potential to save the lives of children. I did this in a loud voice, in broad daylight, with many onlookers. The (male and female) agents were absolutely unfazed by any potential embarrassment. This was truly shocking to me.
Without any moral stigma attached to corruption, it will be nearly impossible to achieve any real economic growth. In addition, the incentives for creative and intelligent individuals are to vie for government employment. The ones that are particularly good will move up from $20 airport bribes to lobbying for international aid.
An Eminent Domain Case that I Favor
If rich, powerful people were subject to eminent domain I think the Kelo decision would have been decided differently. Logan Clements has a good idea for a new hotel project.
Monday, June 27, 2005
Mr. Chip Meany
Code Enforcement Officer
Town
of Weare, New Hampshire
Fax 603-529-4554Dear Mr. Meany,
I
am proposing to build a hotel at 34 Cilley Hill Road in the Town of Weare. I
would like to know the process your town has for allowing such a
development.Although this property is owned by an individual, David H. Souter, a recent
Supreme Court decision, "Kelo vs. City of New London" clears the way for this
land to be taken by the Government of Weare through eminent domain and given to
my LLC for the purposes of building a hotel. The justification for such an
eminent domain action is that our hotel will better serve the public interest as
it will bring in economic development and higher tax revenue to Weare.As
I understand it your town has five people serving on the Board of Selectmen.
Therefore, since it will require only three people to vote in favor of the use
of eminent domain I am quite confident that this hotel development is a viable
project. I am currently seeking investors and hotel plans from an architect.
Please let me know the proper steps to follow to proceed in accordance with the
law in your town.Thank you.
Sincerely,
Logan Darrow
Clements
Freestar Media, LLC
Addendum: The hotel is to be called the Lost Liberty Hotel. You can pledge to stay at the hotel if it is built, thereby demonstrating its public value, at Pledge Bank which uses assurance contracts to overcome prisoner’s dilemma problems. Thanks to Travis Corcoran for the link and starting the pledge.
The Grokster decision won’t much affect illegal file-sharing
Yes it might stifle technological innovation, but it won’t stop or perhaps even diminish illegal file-sharing. You might recall that the major file-sharing service KaZaA is missing from the suit, as it falls under Australian law. Yes there is a suit in Australia but what matters in the longer run is the strength of the most permissive international ruling. Our Supreme Court is unlikely to fit that bill.
Reason.com adds more. David Post has a detailed analysis of the case.