Unhealthy Incentives
The massive personal injury attorney industry
You drive down the freeway into any American city, and you look at the billboards and the buses around you, so you can get a sense of the local businesses that give a city its unique character. Do you see ads for the Eagles and cheesesteaks in Philly? Ads to work at Google or Meta in Palo Alto? Ads for golf and baseball games in Arizona?1
Of course not: you see ads for personal injury lawyers!
Analogously, when I was looking at car crash death data I noticed that the top search result for causes of car accidents on Google is seriousaccidents.com. Is seriousaccidents.com an academic site? A non-profit devoted to traffic safety? A government entity?
Again, of course not: it’s a personal injury law firm.
And when I Googled personal injury lawsuit statistics to find more data for this post, I found… more personal injury law firms as well as lead generation for personal injury lawyers.
Clearly, personal injury lawyers are spending a lot of money on marketing to get clients. How much are they spending? What kind of impact does their work have, and are there ways in which the threat of lawsuits encourages positive behavior? And on the flip side, are there other systems that could better align incentives toward minimizing the risk of deaths and injuries?
These are surprisingly difficult questions to answer. Unfortunately, I’m not going to be able to shed much light on them in this post, but I’ll note a few things that I found:
RunSensible asserts that there are about 400,000 personal injury cases in the US each year, and that the revenue for personal injury lawyers is about $57 billion per year.
A survey of Oregon attorneys from 2022 shows personal injury lawyers are the most highly compensated attorneys, with an average income of $285,000.
From what I can gather, the default business model for personal injury attorneys is to charge a fee contingent on winning. I can’t find hard data on this, though. If the average contingency fee is 30% of winnings, it would imply that the overall amount paid out in personal injury suits (~95% of which are settled) is around $190 billion ($57 billion divided by 0.3).
If that $190 billion number is correct, it means that the average American is effectively paying over $550 per year in higher costs to cover the cost of those lawsuits — about 0.7% of GDP. For context, that number is about 22% of spending on K-12 education in the US. It’s slightly more than Meta’s annual worldwide revenue and slightly less than Americans spend on summer vacations each year.
In addition to direct costs, businesses and organizations change their behavior in multiple ways good and bad to avoid lawsuits — in some cases taking positive actions that their products and services safer, in other cases taking actions to cover their asses so they are less likely to get sued.
Candidly, this is a somewhat unsatisfactory post: I wish I could say “I now understand the dynamics of the personal injury attorney industry and have some ideas for improvement.” I’m not there yet, but I’m struck by both the scope of the problem and the lack of good data on the systems as they exist today. Please share any good books or articles in the comments; I’ll continue to explore this topic and I encourage others to do the same.
I exaggerate slightly — you do see some more local ads in all these places. But they pale in comparison to ads for personal injury lawyers.
Freakonomics had an episode earlier this year which had quite a bit about the history and quantity of advertising. https://freakonomics.com/podcast/personal-injury-lawyers/ I'd love a deeper dive though. Sounds like two main reasons? 1) it's a high turnover business with few to no repeat customers. 2) it's an arms race of spending, firms out spending each other to keep those new customers coming.
I have been meaning to look into this as well. It always strikes me as strange that it's worth lawyers marketing SO much all over the place. Seems like we pay for it in the end, and that there must be a better way.