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Incentive Structures for Class Action Lawyers

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  • Alon Klement
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    Abstract

    This article examines the way in which an attorney fee structure that maximizes the expected recovery for class members in a class action may be implemented in practice. Using a mechanism design approach, we demonstrate that if the court can observe the lawyer's effort, then the optimal payoff to the class may be realized using the lodestar method--a contingent hourly fee arrangement that is currently practiced in many class actions--but only if the hourly contingent fee is multiplied by a declining , as opposed to the practiced constant , multiplier. If the court cannot observe the lawyer's effort, then in some circumstances the optimal payoff to the class may still be realized by offering the lawyer a menu of fee schedules from which she has to choose one. Each fee schedule consists of a fixed percentage and a threshold amount below which the lawyer earns no fee, with the threshold increasing with the chosen percentage. The lawyer is paid the fixed percentage chosen only for amounts won above the threshold. Copyright 2004, Oxford University Press.

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    Bibliographic Info

    Article provided by Oxford University Press in its journal The Journal of Law, Economics, and Organization.

    Volume (Year): 20 (2004)
    Issue (Month): 1 (April)
    Pages: 102-124

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    Handle: RePEc:oup:jleorg:v:20:y:2004:i:1:p:102-124

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    Postal: Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK
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    Cited by:
    1. Bertrand Chopard & Thomas Cortade & Eric Langlais, 2008. "Trial and settlement negotiations between asymmetrically skilled parties," Cahiers du CEREFIGE 0810, CEREFIGE (Centre Europeen de Recherche en Economie Financiere et Gestion des Entreprises), Universite Nancy 2 - Metz, revised 2008.
    2. Emons, Winand & Garoupa, Nuno, 2004. "The Economics of US-Style Contingent Fees and UK-Style Conditional Fees," CEPR Discussion Papers 4473, C.E.P.R. Discussion Papers.
    3. Alberto Cassone & Giovanni B. Ramello, 2011. "The Simple Economics of Class Action: Private Provision of Club and Public Goods," ICER Working Papers 06-2011, ICER - International Centre for Economic Research.
    4. Ingo Vogelsang & Nishal Ramphal & Stephen Carroll & Nicholas Pace, 2007. "An economic analysis of consumer class actions in regulated industries," Journal of Regulatory Economics, Springer, vol. 32(1), pages 87-104, August.
    5. Bruno Deffains & Eric Langlais, 2011. "Informational externalities and settlements in mass tort litigations," European Journal of Law and Economics, Springer, vol. 32(2), pages 241-262, October.
    6. Winand Emons, 2004. "Conditional versus Contingent Fees," Diskussionsschriften dp0409, Universitaet Bern, Departement Volkswirtschaft.
    7. Deffains, Bruno & Langlais, Eric, 2007. "Informational externalities and informational sharing in class action suits," MPRA Paper 4846, University Library of Munich, Germany.

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