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Rees Morrison’s Morsels #163: posts longa, morsels breva

Profit figures of law firms. The U.S. Census Bureau estimates that law firms in that country earned gross profits of $51 billion in 2003, which was a profit rate of 40 percent compared with revenues. However, the Rand report, “Innovations in the Provision of Legal Services in the United States, at 5 (fn. 1) explains that “these figures are not calculated in line with usual accounting standards.” GAAP Principles would reduce the profits. I have therefore mistakenly compared law firm profitability to the profitability of U.S. public companies (See my post of Sept. 22, 2008: traditionally high profit margins in law firms.).

Difference between “experience” goods and “credence” goods. A recent Rand report distinguished between these two terms. With experience goods and services, quality can only be confirm after use. With credence goods, quality may still be unclear even after the service was rendered because some event has not yet happened, and might never. Legal services are mostly experience goods and often credence goods, such as when a lawyer’s drafting of a contract is never tested in court (See my post of April 26, 2006: credence goods; and March 31, 2010: information asymmetry and credence goods.).

Kaldor-Hicks test for improvements. Pareto decision-making seeks to reach a point where any change would make someone worse off (See my post of Nov. 24, 2010: Pareto optimality.). Another criterion was put forward by two men (Kaldor and Hicks) that would permit change if those who are made better off by the change gain more than is lost by those who are made worse off by the change. Law department managers can maneuver more under the Kaldor-Hicks principle.

A privilege blow to third-party litigation funding. A District Judge in Delaware ruled in June 2010 that “disclosure of information to possible funders waived the attorney-client privilege.” This footnote from a Rand report, “Innovations in the Provision of Legal Services in the United States,” would seem to raise a significant issue for litigation finance organizations (See my post of April 11, 2011: litigation funding with 9 references.).