A debate has long raged concerning whether the contingency fee market <\/i>for legal services is or is not competitive. The debate has been fierce because <\/i>its stakes are sky high. If the market is competitive, current efforts to cut or <\/i>cap contingency fees are clearly wrong-headed. If the opposite, then at least <\/i>some efforts to address the market failure probably make sense.<\/i><\/p>\n
Leveraging the results of a novel empirical study and drawing from <\/i>both classical and behavioral economics, this <\/i>Article assembles the best evi<\/i>dence to date to resolve that age-old question. We find that, much like the <\/i>market for brokerage services in residential <\/i>real estate, the contingency fee <\/i>market for personal injury (PI) representation is neither efficient nor com<\/i>petitive. The market for PI representation does not behave like a competitive <\/i>market, and the preconditions for competition are lacking. Mirroring the <\/i>brokerage market, fees are not salient to consumers of legal services, and <\/i>stubborn informational asymmetries cloud consumer search.<\/i><\/p>\n
Even so, contingency fee caps<\/i>\u2014<\/span>many reformers\u2019 <\/i>reflexive fix<\/i>\u2014<\/span>are not <\/i>the answer. Price controls are generally harmful, and they are particularly <\/i>counterproductive when deployed in this context. Rather than promoting <\/i>access to legal services or reducing principal-agent problems, caps can be <\/i>counted on to restrict access and skew attorney incentives. Perhaps worse, <\/i>caps are regressive. Those who are already disadvantaged bear the brunt of <\/i>this reform.<\/i><\/p>\n We have a better idea. Because the problems we identify are chiefly <\/i>traceable to inadequate information, policymakers ought to use <\/i>\u201c<\/span>closing <\/i>statements<\/i>\u201d <\/span>to get proper information into consumers\u2019 hands.<\/i><\/p>\n Continue reading Competition and Contingency Fees<\/strong><\/em><\/a>.<\/p>\n