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Oxford Economic Papers Advance Access originally published online on June 12, 2007
Oxford Economic Papers 2007 59(4):662-681; doi:10.1093/oep/gpm015
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© Oxford University Press 2007 All rights reserved

Standard fees for legal aid: an empirical analysis of incentives and contracts

Paul Fenn*, Alastair Gray{dagger}, and Neil Rickman{ddagger}

*Nottingham University Business School
{dagger}University of Oxford
{ddagger}Department of Economics, University of Surrey, Guildford GU2 7XH, UK; and CEPR; e-mail: n.rickman{at}surrey.ac.uk


  Abstract

This paper asks whether lawyers respond to financial incentives in ways that are consistent with predictions from contract theory. It uses data collected from before/after the introduction of standard fees for legal aid lawyers in England and Wales. For some inputs (not all), these substituted fixed price contracts for retrospective fee-for-service remuneration. We consider the effects of these new contracts on case-level inputs and examine the extent of substitution across inputs remunerated by fixed prices and fee-for-service. We find that lawyers' responses were consistent with theory: (i) high-powered incentives for cost-reduction lowered inputs that may have been difficult to monitor, and (ii) substitution across inputs took place in line with multitask agency. Our results have implications for legal aid expenditure control, and current policies on personal injury litigation, as well as providing empirical evidence on the effects of remuneration contracts.

Key Words: JEL classifications: K4 • J2


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