Legal fee restrictions, moral hazard, and attorney rents

When attorney effort is unobservable and certain other simplifying assumpti ons (such as risk neutrality) hold, it is efficient for an attorney to purc hase the rights to a client's legal claim. However, the American Bar Associ ation Model Rules of Professional Conduct prohibit this arrangement. We sho w that this ethical restriction, which is formally equivalent to requiring a minimum fixed fee of zero, can create economic rents for attorneys, even though they continue to compete along the contingent-fee dimension. The con tingent fee is not bid down to the zero-profit level, because such a fee do es not induce sufficient attorney effort. We thereby provide a political ec onomy explanation for these restrictions.