Legal Fee Restrictions, Moral Hazard, and Attorney Rents

When attorney effort is unobservable and certain other simplifying assumptions (such as risk neutrality) hold, it is efficient for an attorney to purchase the rights to a client’s legal claim. However, the American Bar Association Model Rules of Professional Conduct prohibit this arrangement. We sho...

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Bibliographic Details
Published in:The Journal of law & economics 2001-10, Vol.44 (2), p.549-572
Main Authors: Santore, Rudy, Viard, Alan D.
Format: Article
Language:English
Subjects:
Attorneys
Attorneys fees
Criminal defense attorneys
Economic rent
Fees
Lawsuits
Legal ethics
Legal fees
Litigation
Moral hazard
Multidisciplinary practices
Plaintiffs attorneys
Professional ethics
Restrictions
Studies
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Summary:When attorney effort is unobservable and certain other simplifying assumptions (such as risk neutrality) hold, it is efficient for an attorney to purchase the rights to a client’s legal claim. However, the American Bar Association Model Rules of Professional Conduct prohibit this arrangement. We show that this ethical restriction, which is formally equivalent to requiring a minimum fixed fee of zero, can create economic rents for attorneys, even though they continue to compete along the contingent‐fee dimension. The contingent fee is not bid down to the zero‐profit level, because such a fee does not induce sufficient attorney effort. We thereby provide a political economy explanation for these restrictions.
ISSN:0022-2186
1537-5285
DOI:10.1086/322814