CHAPTER 3B
Contingent fees compared to hourly fees.
Contingent fees are viewed with enough suspicion that they are regulated by a number of states. Do they encourage excessive litigation, and thus represent some hidden rent-seeking by the lawyers? We must look at all aspects of lawyers behavior to fairly determine where rent-seeking exists.
On the positive social benefit side, the contingent fee scheme offers:
• access to a lawyer for individuals who cannot pay the hourly fee.
• diversified risk for the risk-averse client. The lawyer has many cases from which to pay his expenses.
• work resulting in only productive (payoff) results for the client.
• eliminated time monitoring of the specific case.
And on the negative social benefit side contingent fees :
• encourage excessive litigation. (only if being informed and pursuing your right to legal redress is excessive)
• create incentive to accept settlement.
• produce excessive fees.
The injurer has incentive to avoid suit by taking additional care.
However, an economic inefficiency results when extra-ordinary additional care uses up resources which would be productive in the absence of the threat of litigation. ( see Appx H, which applies here)
Liability allocated under the Strict Liability Standard puts a potential injurer at risk, if suit can be instigated. The example of Miceli & Segerson is that a lawyer agreeable to work for a contingent fee leads potential injurers to take greater care in preventing accidents. The ultimate result on numbers of cases filed is unknown, since (similar to the price and income effects offsetting one another) more availability of lawyers offsets more preventive measures to reduce accident. Whether the resources consumed by the accident preventative measures is excessive cannot be determined, except in individual cases. Contingent fees increase safety measures in this type liability setting, countering arguments that contingent fees encourage litigation while having no offsetting social benefit.
Liability under the Negligence standard defended with a Due Standard of Care defense is a bit more balanced. There is a real possibility that these contingent fee cases reduce the court's total case load because a lawyer is less likely to file before establishing definite facts supporting his own probability of winning. If he were hired by the hour he would be paid regardless of the outcome, and be more likely to follow through in a case for reasons other than a high probability of success, due to the vagaries of the due diligence standard of care standard applied to negligence liability.
Both of these examples contain the element of simplicity versus complexity, since strict liability is simpler than due diligence standard of care. However, the simplicity and complexity of these legal standards is not within the control of lawyers, and as Posner said, the efficient rule of law does not easily give way to an inefficient rule, due to the greater stake (right, property, award) that a "wronged" litigant has to protect and draw upon in his own defense.