Contingency Fees, Settlement Delay and Low-Quality Litigation: Empirical Evidence from Two Datasets

Posted: 7 Jul 2003

See all articles by Eric Helland

Eric Helland

Claremont McKenna College - Robert Day School of Economics and Finance; RAND

Alexander T. Tabarrok

George Mason University - Department of Economics

Abstract

Although flat fees are common for divorces, wills and trusts, and probate, lawyers in personal injury cases generally are paid by contingency fee or at an hourly rate. Arguments have been made that contingency fees increase low-quality, frivolous litigation but counterarguments suggest that contingency fees actually limit such litigation and instead it is hourly fees that increase low-quality litigation. Using a difference in differences test and data on a cross section of states in 1992, we test whether legal quality is lower under contingency or hourly fees. We also examine medical malpractice claims in Florida using a time series centered around a law change that limited contingency fees. We also examine the impact of fee arrangements on the expected time to settlement. We find that hourly fees encourage the filing of low-quality suits and increase the time to settlement (i.e., contingency fees increase legal quality and decrease the time to settlement).

Suggested Citation

Helland, Eric A. and Tabarrok, Alexander T., Contingency Fees, Settlement Delay and Low-Quality Litigation: Empirical Evidence from Two Datasets. The Journal of Law, Economics, and Organization, Vol. 19, No. 2, pp. 517-542, 2003. Available at SSRN: https://ssrn.com/abstract=405500

Eric A. Helland (Contact Author)

Claremont McKenna College - Robert Day School of Economics and Finance ( email )

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Alexander T. Tabarrok

George Mason University - Department of Economics ( email )

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