Contingent Fees

Contingent Fees for Lawyers: The Impact on Litigation and Accident Prevention Author(s): Thomas J. Miceli and Kathleen Segerson Source: The Journal of Legal Studies, Vol. 20, No. 2 (Jun., 1991), pp. 381-399 Published by: The University of Chicago Press Stable URL: http://www.jstor.org/stable/724445 Accessed: 26/06/2009 10:33
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CONTINGENT FEES FOR LAWYERS: THE IMPACT ON LITIGATION AND ACCIDENT PREVENTION
THOMAS J. MICELI and KATHLEEN SEGERSON*

I.

INTRODUCTION

arrangements have become the standard form of payC ONTINGENT-fee ment contract between clients and lawyers in tort cases involving personal injuries. Economic analyses of contingent fees have identified several advantages aswell as several disadvantages relative to hourly fees.1 Among the purported advantages of contingent fees are that they (1) give individuals with insufficient resources to hire an hourly fee lawyer access to the legal system by allowing them, in effect, to borrow a lawyer's services against their expected award; (2) allow risk-averse individuals to shift the risks of a lawsuit to lawyers who arebetter able to diversify the risks over their entire caseload; (3) create an incentive for lawyers to work in the best interests of their clients; and (4) eliminate the need to monitor the amount of time a lawyer devotes to a given case. Some of the alleged disadvantages of contingent fees are that they (1) encourage excessive litigation; (2) create an incentive for lawyers to accept settle*Department of Economics, University of Connecticut, Storrs. The authors acknowledge the useful comments of Jerry Sazama and participants in the Economics Colloquium at the University of Connecticut. l Recent articles on contingent fees include Murray Schwartz & Daniel Mitchell, An Economic Analysis of the Contingent Fee in Personal Injury Litigation, 22 Stan. L. Rev. 1125 (1970); Daniel Mitchell & MurraySchwartz, Theoretical Implications of Contingent Legal Fees, 12 Q. Rev. Bus. & Econ. 69 (1972); Kevin Clermont & John Currivan, Improving on the Contingent Fee, 63 Cornell L. Rev. 529 (1978); P. Halpern & S. Turnbull, Legal Fees Contracts and Alternative Cost Rules: An Economic Analysis, 3 Int'l Rev. Law & Econ. 2 (1983); Patricia M. Danzon, Contingent Fees for Personal Injury Litigation, 14 BellJ. Econ. 213 (1983); Herbert Kritzer, William Felstiner, Austin Sarat, & David Trubek, The Impact of Fee Arrangement on Lawyer Effort, 19 Law & Soc. Rev. 251 (1985); Geoffrey P. Miller, Some Agency Problems in Settlement, 16 J. Legal Stud. 189 (1987); and Joseph Fisher, Contingent and Noncontingent Attorney's Fees in Personal Injury Litigation, 6 Contemp. Pol'y Issues 108 (1988). [Journal of...