Contingent fee caps, screening, and the quality of legal services

Stephen J. Cotten and Rudy Santore

International Review of Law and Economics, 2012, vol. 32, issue 3, 317-328

Abstract: In theory, contingent fees can reduce the effects of informational asymmetries by allowing clients to screen low-quality attorneys who obtain smaller awards in expectation. We experimentally examine whether clients possess the sophistication necessary to design screening contracts and how contingent fee caps affect a client's ability to screen. When contingent fees are unrestricted, we find that most subjects are able to design contracts that screen low-quality attorneys, resulting in an increase in the quality of legal services. However, we find that contingent fee caps decrease the frequency of screening even if the cap is non-binding. Caps on contingent fees also reduce clients’ ability to extract surplus, allowing attorneys to earn greater profits.

Keywords: Contingent fees; Caps; Attorney quality; Experiments (search for similar items in EconPapers)
JEL-codes: D8 K4 L1 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:irlaec:v:32:y:2012:i:3:p:317-328

DOI: 10.1016/j.irle.2012.06.001

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