f/k/a archives . . . real opinions & real haiku

Today’s ABA Journal eReport spotlights the recently-released study

Two Cheers for Contingent Fees (AEI, Aug. 2005), written by economic

professors Alexander Tabarrok and Eric Helland (eReport, by G.M.

Filisko,“Fee Caps Won’t Solve Liability Crisis, Study Says,” Sept. 23,

2005). Today’s article quotes GMU’s Tabarrok defending the Study from

the critiques of Walter Olson (of the Manhattan Institute and Point of Law),

Cardozo Law Professor Lester Brickman, and myself.   

 

In our prior post, “fees of the assumption” (Aug. 26, 2005), I outlined my basic

problem with the T&H study: it’s based on two major premises that are belied

by the facts.  Frist, T&H posit that contingency fee arrangements are “efficient”

because — well — contracting is efficient.  My retort:

  This assumption of efficiency has no basis in fact when

applied to the contingency fee arrangement between lawyer and client.  

In the vast majority of cases, the lawyer presents the client with a contract

that reflects the standard or “prevailing” fee in their locality; the client 

has no idea that he or she has the right to negotiate the percentage

level, and has no information that would allow for intelligent bargaining

— e.g., the likelihood of success, how much work is involved, or how

much the award is likely to be. [see our post “it’s not unusual (to

charge one-third)”]

Similarly, T&H assume as a matter of economic faith that p/i lawyers faced with

a cap on contingency fees would merely start charging by the hour and would

not lose income.  As Olson and Brickman argue, there is no empirical evidence

supporting that claim and plenty of reasons to believe the switch to hourly fees

would never happen (including the historical fact that the lack of client funds were

the reason contingency arrangements arose and were allowed in the first place,

and the failure of p/i lawyers to offer hourly fee arrangements now to every client as

an alternative, even though ABA Formal Ethics Opinion 94-389 mandated over a

decade ago that they do exactly that.)

 

What is Tabarrok’s reply?  He told the author of the eReport article that T&H’s 

assumption is “trivial economics” and that “no economist would disagree with it.” 

In other words “economic theory tells us this would happen or does happen” and

therefore we can base our conclusion on that assumption.   I think Tabarrok is

trivializing economics by touting theory over reality — and even worse, by positing

simplistic theory that fails to take into account marketplace dynamics in a particular

and peculiar industry.   Only fervent acolytes of T&H’s brand of economics will bow

down to their pronouncements and conclusions and accept them as the basis for

policymaking decisions.  The rest of the us will conclude that economics has about

as much to with shaping public debate on topics such as tort reform and fee caps

as does theology.

 

Theories are guides; when they become blindfolds accepted on blind faith, they

rarely lead us to a useful destination. 

 

taking up

the holy man’s chant. . .

croaking frogs

 

    Kobayashi Issa 

       translated by David G. Lanoue