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.

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