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Wikipedia, Free Markets and Contingency Fees

Cass Sunstein is blogging on Lessig Blog and has asked an interesting question that compares Wikipedia to Hayek's description of the marketplace.

Sunstein says that, unlike the marketplace, (1) Wikipedia "doesn't rest on economic incentives . . . there are no trades" and (2) Wikipedia works on a last in time rule. On this latter point, he writes, "The last editor. and hence a single person, can do a lot. But in the price system, the last purchaser usually can't have a huge effect." (For the uninitiated, here is how Wikipedia works).

While PointOfLaw is primarily a legal forum, as opposed to an economic one, it does tend to advance free market principles (especially in the context of legal reform), so this is probably not entirely out of order.

I came up with a number of other similarities and differences:

(1) Centralization - There is only one Wikipedia, but there are many markets. Markets are created, disappear, reappear, combine and fragment, but there is, and can only be, one Wikipedia.

(2) Mode of Communication - Wikipedia exists on a series of web pages. In other words, Wikipedia is a collection of written communications. Markets are comprised of communication in a multiplicity of formats. Communications can be written, oral and non-verbal (i.e., a trader who shorts a stock may not communicate anything verbally, but his action - i.e., the short - may communicate various things to the stock market).

(3) Motivation - Participants in Wikipedia may have a number of motivations: scholarly intent, self-promotion, curiosity, etc. Participants in the marketplace are presumed to have a self-interested profit motive. In fact, markets can become dysfunctional when participants cease to act according to a profit motive (i.e., during a labor strike, for example, striking employees act to their short-term economic detriment in the hopes of achieving some other goals).

I'm sure there are other comparisons as well.

How can these lessons relate to legal reform?

In Out of Balance, I examine a number of proposals to reform the American litigation system, including proposals to change lawyers' obligations regarding contingency fees. While there are undoubtedly many abuses in this area, and it would be well for legislatures to examine the problem, I ultimately conclude that a uniform, nationwide reform of contingency fees rules would be very difficult to implement.

Any reform of contingency fees is, in essence, a change to the marketplace for legal services. As this discussion demonstrates, marketplaces are extremely diffuse, decentralized, multi-modal and ephemeral creatures.

In the marketplace for attorneys, what information do clients use to evaluate their alternatives? Where do potential clients get this information? What motivations do clients have? What motivations should clients have? Do potential clients actually act in their own self-interests? In an area as complicated as the law, are clients actually capable of acting in their own self-interests without the objective and professional advice of an attorney?

Given the complexity of these questions, and the complexity of the marketplace, reform based upon a regulation of that marketplace is extremely difficult.

Food for thought on a Tuesday morning.



Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.