In Defense of the Billable Hour: A Monitoring Theory of Law Firm Fees
Posted: 18 Oct 2014
Date Written: October 16, 2014
Critics often deride the billable hour as oppressive and inefficient. This Article presents a novel argument in the billable hour’s favor: clients use it to monitor their lawyers’ efforts, thereby mitigating the incentive problems that plague alternative fee arrangements. Prior literature has suggested that law firms use billable hours because they cannot bear the risk of cost overruns. I argue that this perspective is theoretically shaky, and I demonstrate through both historical and empirical evidence that monitoring best explains the popularity of the billable hour.
Keywords: Billable hour, alternative fees, law firms, legal profession, agency theory, law & history, law & economics
Suggested Citation: Suggested Citation