The Wages of Risk: The Returns of Contingency Fee Legal Practice

Abstract

This paper reviews and analyzes extant data on the effective hourly rates achieved from contingency fee cases and reports detailed analyses of data from a survey of Wisconsin contingency fee practitioners. The analyses emphasize the need to examine returns across sets of cases rather than on a case-by-case basis. The results reported by the author indicate that, across a "portfolio" of cases, contingency fees produce a premium over fees from hourly fee work but that for most lawyers that premium is on the order of 25-40%. Furthermore, much of the premium is generated by a small subset of the contingency fee cases. The author concludes with the observation that efforts to limit contingency fees through regulatory efforts are likely to have the most impact on the routine cases that produce modest premiums rather than on that small subset of cases that produce large premiums; he suggests that an alternative to regulation would be to find ways to increase competition, both from within the bar and from outside the bar (i.e., allow licensed non-lawyers to represent claimants in relatively routine matters now handled by lawyers on a contingency fee basis).

JEL Classification: J31