{"id":4102,"date":"2005-09-23T12:59:48","date_gmt":"2005-09-23T16:59:48","guid":{"rendered":"http:\/\/blogs.law.harvard.edu\/formerlyknownas\/2005\/09\/23\/trivializing-economics-tabarr"},"modified":"2011-08-05T14:57:23","modified_gmt":"2011-08-05T18:57:23","slug":"trivializing-economics-tabarrok-and-helland","status":"publish","type":"post","link":"https:\/\/archive.blogs.harvard.edu\/ethicalesq\/2005\/09\/23\/trivializing-economics-tabarrok-and-helland\/","title":{"rendered":"trivializing economics (Tabarrok and Helland)"},"content":{"rendered":"

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Today’s <\/FONT>ABA Journal eReport<\/FONT><\/EM><\/A> spotlights the recently-released study<\/FONT><\/DIV>
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Two Cheers for Contingent Fees<\/FONT><\/A> <\/EM><\/FONT>(AEI, Aug. 2005), written by economic <\/FONT><\/FONT><\/DIV>
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professors Alexander <\/FONT>Tabarrok and Eric Helland (eReport<\/EM>, by G.M. <\/FONT><\/FONT><\/DIV>
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Filisko,<\/FONT><\/FONT>“Fee Caps Won’t<\/A><\/FONT><\/FONT> Solve Liability Crisis, Study Says<\/A>,” Sept. 23, <\/FONT><\/DIV>
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2005). <\/FONT>Today’s <\/FONT>article quotes GMU’s Tabarrok defending the Study from <\/FONT><\/DIV>
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the critiques of <\/FONT>Walter Olson<\/FONT><\/A> (of the Manhattan Institute and <\/FONT>Point of Law<\/FONT><\/EM><\/A>), <\/FONT><\/FONT><\/DIV>
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Cardozo Law <\/FONT><\/FONT>Professor Lester Brickman<\/FONT><\/A>, and myself.  <\/FONT> <\/FONT><\/DIV>
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<\/FONT> <\/DIV>
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In our <\/FONT>prior post<\/FONT><\/A>, “fees of the assumption” (Aug. 26, 2005), I outlined my basic <\/FONT><\/FONT><\/DIV>
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problem with the T&H study: it’s based on two major premises that are belied <\/FONT><\/DIV>
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by the facts.  Frist, T&H posit that contingency fee arrangements are “efficient” <\/FONT><\/DIV>
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because <\/FONT>— well — contracting is efficient.  My retort:<\/FONT><\/FONT><\/DIV>
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\"scales  This assumption of efficiency has no basis in fact when <\/FONT><\/DIV>
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applied to <\/FONT>the contingency fee <\/FONT>arrangement between lawyer and client.  <\/FONT><\/FONT><\/DIV>
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In the <\/FONT><\/FONT>vast majority of cases, the lawyer presents <\/FONT>the client with a contract <\/FONT><\/FONT><\/DIV>
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that reflects the standard or “prevailing” fee in their locality; the <\/FONT>client <\/FONT><\/FONT><\/DIV>
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has no idea that he or she has the right to negotiate the percentage <\/FONT><\/DIV>
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level, and has <\/FONT>no information that would allow for intelligent bargaining <\/FONT><\/FONT><\/DIV>
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— e.g<\/EM>., the likelihood of success, <\/FONT>how much work is involved, or how <\/FONT><\/FONT><\/DIV>
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much the award is likely to be. [see <\/FONT>our post<\/FONT><\/A> “it’s not unusual (to <\/FONT><\/FONT><\/FONT><\/DIV>
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charge one-third)”] <\/FONT><\/FONT><\/DIV><\/DIV><\/BLOCKQUOTE>
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Similarly, T&H assume as a matter of economic faith that p\/i lawyers faced with <\/FONT><\/DIV>
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a cap on contingency fees would merely start charging by the hour and would <\/FONT><\/DIV>
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not lose income.  As Olson and Brickman argue, there is no empirical evidence <\/FONT><\/DIV>
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supporting that claim and plenty of reasons to believe the switch to hourly fees <\/FONT><\/DIV>
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would never happen (including the historical fact that the lack of client funds were <\/FONT><\/DIV>
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the reason contingency arrangements arose and were allowed in the first place, <\/FONT><\/DIV>
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and<\/EM> the failure of p\/i lawyers to offer hourly fee arrangements now to every client as <\/FONT><\/DIV>
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an <\/FONT>alternative, even though ABA Formal Ethics Opinion 94-389 mandated over a <\/FONT><\/DIV>
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decade <\/FONT>ago that they do exactly that.)<\/FONT><\/DIV>
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<\/FONT> <\/DIV>
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What is Tabarrok’s reply?  He told the author of the eReport<\/EM> article<\/A> that T&H’s  \"trashman<\/FONT><\/DIV>
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assumption is “trivial economics<\/EM>” and that “no economist would disagree with it.”  <\/FONT><\/DIV>
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In other words “economic theory tells us this would happen or does happen” and <\/FONT><\/DIV>
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therefore we can base our conclusion on that assumption.   I think Tabarrok<\/EM> is <\/FONT><\/DIV>
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trivializing economics<\/EM> by touting theory over reality — and even worse, by positing <\/FONT><\/DIV>
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simplistic <\/FONT>theory that fails to take into account marketplace dynamics in a particular <\/FONT><\/DIV>
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and <\/FONT>peculiar industry.   Only fervent acolytes of T&H’s brand of economics will bow <\/FONT><\/DIV>
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down to their pronouncements and conclusions and accept them as the basis for<\/FONT><\/DIV>
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policymaking decisions.  The rest of the us will conclude that economics has about <\/FONT><\/DIV>
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as much to with shaping public debate on topics such as tort reform and fee caps <\/FONT><\/DIV>
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as does theology.<\/FONT><\/DIV>
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<\/FONT> <\/DIV>
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Theories are guides; when they become blindfolds accepted <\/FONT>on blind faith, they <\/FONT><\/DIV>
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rarely lead us to a useful destination.  <\/FONT><\/DIV>
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<\/FONT> <\/DIV>
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taking up<\/EM><\/FONT><\/FONT><\/DIV>
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the holy man’s chant. . .<\/EM><\/FONT><\/FONT><\/DIV>
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croaking frogs<\/EM><\/FONT><\/FONT><\/DIV>
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<\/FONT> <\/DIV>
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    Kobayashi Issa<\/STRONG><\/FONT><\/A> <\/FONT><\/DIV>
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       translated by <\/FONT>David G. Lanoue<\/STRONG><\/FONT><\/A> <\/FONT><\/FONT> <\/FONT><\/DIV>
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<\/FONT> <\/DIV>
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 <\/DIV><\/DIV><\/BLOCKQUOTE><\/FONT><\/BLOCKQUOTE><\/p>\n","protected":false},"excerpt":{"rendered":"

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 […]<\/p>\n","protected":false},"author":94,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":false,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2},"jetpack_post_was_ever_published":false},"categories":[2926],"tags":[],"class_list":["post-4102","post","type-post","status-publish","format-standard","hentry","category-pre-06-2006"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/p6kP1R-14a","_links":{"self":[{"href":"https:\/\/archive.blogs.harvard.edu\/ethicalesq\/wp-json\/wp\/v2\/posts\/4102","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/archive.blogs.harvard.edu\/ethicalesq\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/archive.blogs.harvard.edu\/ethicalesq\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/archive.blogs.harvard.edu\/ethicalesq\/wp-json\/wp\/v2\/users\/94"}],"replies":[{"embeddable":true,"href":"https:\/\/archive.blogs.harvard.edu\/ethicalesq\/wp-json\/wp\/v2\/comments?post=4102"}],"version-history":[{"count":1,"href":"https:\/\/archive.blogs.harvard.edu\/ethicalesq\/wp-json\/wp\/v2\/posts\/4102\/revisions"}],"predecessor-version":[{"id":13017,"href":"https:\/\/archive.blogs.harvard.edu\/ethicalesq\/wp-json\/wp\/v2\/posts\/4102\/revisions\/13017"}],"wp:attachment":[{"href":"https:\/\/archive.blogs.harvard.edu\/ethicalesq\/wp-json\/wp\/v2\/media?parent=4102"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/archive.blogs.harvard.edu\/ethicalesq\/wp-json\/wp\/v2\/categories?post=4102"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/archive.blogs.harvard.edu\/ethicalesq\/wp-json\/wp\/v2\/tags?post=4102"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}