Abstract

http://ssrn.com/abstract=1986491
 
 

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The Puzzling Uniformity of Lawyers’ Contingent Fee Rates: An Assortative Matching Solution


Eyal Zamir


Hebrew University of Jerusalem - Faculty of Law

Barak Medina


Hebrew University of Jerusalem - Faculty of Law

Uzi Segal


Boston College - Department of Economics

January 16, 2012


Abstract:     
Lawyers’ Contingent Fee (CF) rates are rather uniform, often one-third of the recovery. Arguably, this uniformity attests to collusion in the market, resulting in clients paying supra-competitive fees. This paper challenges this common argument.

Uniform CF rates are not necessarily superior to negotiable ones; yet they provide clients with an important advantage. They result in clients making a defacto “take-it-or-leave-it” offer. It precludes lawyers from exploiting their private information about the lawsuit’s expected value and the amount of work it requires. The uniformity of CF rates enables clients to hire the best available lawyer, either directly, if clients know lawyers’ ranking, or indirectly, through the referral system. This uniformity thus fosters a positive assortative matching of lawyers and clients. Finally, the fact that both direct clients and clients obtained through paid-for referrals pay the same CF rate does not attest to cross-subsidization, as the cases a lawyer gets through referrals are quite different than those she gets directly.

Number of Pages in PDF File: 26

Keywords: lawyers, contingent fee, uniform prices, information asymmetry

JEL Classification: D49, D82, J41, K23, K41

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Date posted: January 17, 2012 ; Last revised: January 27, 2012

Suggested Citation

Zamir, Eyal and Medina, Barak and Segal, Uzi, The Puzzling Uniformity of Lawyers’ Contingent Fee Rates: An Assortative Matching Solution (January 16, 2012). Available at SSRN: http://ssrn.com/abstract=1986491 or http://dx.doi.org/10.2139/ssrn.1986491

Contact Information

Eyal Zamir
Hebrew University of Jerusalem - Faculty of Law ( email )
Mount Scopus, 91905
Israel
+972 2 582 3845 (Phone)
+972 2 582 9002 (Fax)

Barak Medina (Contact Author)
Hebrew University of Jerusalem - Faculty of Law ( email )
Mount Scopus, 91905
Israel

Uzi Segal
Boston College - Department of Economics ( email )
140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States
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