• Christopher Heaps

Rent-seeking lawyers and disruptive entrepreneurs

Economists use the phrase “rent seeking” to refer to wasteful efforts to gain a prize or to compete over how some prize should be distributed. It is a little confusing because it doesn’t have much to do with the usual meaning of the term “rent,” but it can still be easily understood. Consider this simple example:

A Spanish galleon loaded with treasure from the New World and sunk centuries ago is located on the ocean floor. Three teams vie to be the first to raise the treasure and claim it. Each team spends five million dollars in preparing to get the necessary equipment to the wreck site. Eventually one team succeeds and claims the treasure. The other teams are out of luck.

A total of fifteen million dollars was spent on pursuing the treasure, and the treasure is worth only six million. The result is perverse. Together, the teams are now financially worse off than if the treasure had never been raised. Maybe one team has netted a small profit, but maybe not if the competition goes on longer than expected. Paradoxically, the treasure effectively gets smaller as the race goes on because its value is fixed but the cost to get it keeps going up. All money spent beyond the bare amount necessary to raise the treasure is wasted.

Situations like this, where parties compete against one another for a limited prize, are common in modern life. At best they are a waste of resources, and at worst they are a “lose-lose,” where everyone is worse off at the end. This is a concrete example of how cooperation and compromise, however difficult, can create a better world for everyone.

Many people think of lawyers as rent seekers. The lawsuit is like the race for the sunken treasure: Both sides spend and spend for the right to claim an ever-shrinking pot of assets. And lawyers encourage this behavior because they benefit from it. From this point of view, lawyers produce nothing of value to society, but merely encourage an ultimately destructive behavior, rent seeking.

But this view of lawyers is unfairly limited. Most lawyers spend their time doing work that prevents rent seeking. For example, I spend a great deal of time drafting contracts, trusts, wills, and other transactional legal documents. This work is intended to prevent lawsuits by setting out clear and comprehensive terms of a deal or a testamentary gift that help avoid disputes down the road.

But this is not true of all lawyers. I can think of a handful of examples from my practice right off the top of my head where my assessment was that the opposing lawyer, usually styling himself (usually a “him”) as a “litigator,” was more interested in running up his bill than in entering into a fair settlement of the dispute.

Unfortunately, this is a fairly common legal strategy in the United States. A wealthy party, through “legal maneuvering” in litigation, will force a less wealthy party to spend so much money on legal fees that they can no longer afford to defend the lawsuit. The less wealthy party may even go bankrupt. Some federal political leaders use this strategy frequently in their own personal business dealings. It is a great example of how personal wealth affects access to justice in America.

Yes, some lawyers are “rent seekers.” I will never be one of them.

Instead, my goal for my practice is to be a disruptive entrepreneur. This is someone who disrupts or changes a particular industry by approaching the industry in a radically different way. A good example of disruption comes from the automotive industry. When the first Japanese cars were imported to the US, they were regarded as at best a niche product and at worst an oddity. Now, these automakers have the best selling cars in America. Tesla Motors seems to be similarly disruptive right now.

One way I’m trying to create a better experience for my clients is to offer some certainty in the price of my services. Believe it or not, it is pretty unusual in the legal industry to provide a fixed price quote for a defined scope of legal services, and to publish specific fixed-fee prices for common legal services (“service packages”). I’m doing both of those things. Another thing I’m doing, despite the fact that it’s a little lawyer-cheesy, is offering a low-price guarantee.

I hope this is one small step for a lawyer, but (eventually) a giant leap for the legal consumer.

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