Who Benefits from the Uniformity of Lawyers' Contingent Fee Rates?

Review of Law and Economics, Forthcoming

27 Pages Posted: 18 Oct 2013

See all articles by Eyal Zamir

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

Date Written: February 2013

Abstract

Lawyers’ Contingent Fee (CF) rates are rather uniform, often one-third of the recovery. Arguably, this uniformity is a type of anti-competitive price-fixing, which results in clients paying supra-competitive fees. This paper challenges this argument. It shows that uniform CF rates provide clients with an important advantage, as they enable them to make a de facto "take-it-or-leave-it" offer. Consequently, lawyers cannot exploit their private information, and clients retain the transaction’s entire surplus and may hire the best lawyer among those who find it profitable to handle the case.

The paper also addresses the effect of uniformity of CF rates when lawyers refer cases to other lawyers. It shows that uniformity facilitates matching of clients and lawyers through the referral system. It also demonstrates that the fact that both direct clients and those obtained through paid-for referrals pay the same CF rate does not attest to cross-subsidization. The clients whose cases are transferred for a referral fee (paid by the handling lawyer) "pay" for the referral service by obtaining a less highly ranked lawyer.

Keywords: Contingent Fee, lawyers, bargaining, uniformity of fees, referrals, search, Asymmetric Information

JEL Classification: D43, D82, D83, K23, K41

Suggested Citation

Zamir, Eyal and Medina, Barak and Segal, Uzi, Who Benefits from the Uniformity of Lawyers' Contingent Fee Rates? (February 2013). Review of Law and Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2341214

Eyal Zamir

Hebrew University of Jerusalem - Faculty of Law ( email )

Mount Scopus
Mount Scopus, IL 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
Mount Scopus, IL 91905
Israel

Uzi Segal

Boston College - Department of Economics ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

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