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US-style contingent fees and UK-style conditional fees: agency problems and the supply of legal services

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  • Winand Emons

    (Departement Volkswirtschaft, Universität Bern, Schanzeneckstrasse 1, Postfach 8573, CH-3001 Bern, Switzerland)

  • Nuno Garoupa

    (Faculdade de Economia, Universidade Nova de Lisboa, Campus de Campolide, P-1099-032 Lisboa, Portugal)

Abstract

Under contingent fees, the attorney gets a share of the judgment; under conditional fees, the lawyer gets an upscale premium if the case is won which is, however, unrelated to the adjudicated amount. We compare conditional and contingent fees in a principal-agent framework where the lawyer chooses unobservable effort after she has observed the amount at stake. Contingent fees provide better incentives than conditional fees independently of whether upfront payments are restricted to be non-negative or not. Under contingent fees, the attorney uses her information about what is at stake more efficiently. Copyright © 2006 John Wiley & Sons, Ltd.

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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Managerial and Decision Economics.

Volume (Year): 27 (2006)
Issue (Month): 5 ()
Pages: 379-385

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Handle: RePEc:wly:mgtdec:v:27:y:2006:i:5:p:379-385

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Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976

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  1. Nuno Garoupa & Fernando Gómez, 2002. "Cashing by the hour: Why large law firms prefer hourly fees over contingent fees," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 639, Department of Economics and Business, Universitat Pompeu Fabra.
  2. Winand Emons, 2004. "Conditional versus Contingent Fees," Diskussionsschriften, Universitaet Bern, Departement Volkswirtschaft dp0409, Universitaet Bern, Departement Volkswirtschaft.
  3. Kirstein, Roland & Rickman, Neil, 2003. ""Third Party Contingency" contracts in settlement and litigation," CSLE Discussion Paper Series 2003-09, Saarland University, CSLE - Center for the Study of Law and Economics.
  4. Daniel F. Rubinfeld & Suzanne Scotchmer, 1993. "Contingent Fees for Attorneys: An Economic Analysis," RAND Journal of Economics, The RAND Corporation, vol. 24(3), pages 343-356, Autumn.
  5. Dana, James D, Jr & Spier, Kathryn E, 1993. "Expertise and Contingent Fees: The Role of Asymmetric Information in Attorney Compensation," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 9(2), pages 349-67, October.
  6. Halpern, P. J. & Turnbull, S. M., 1983. "Legal fees contracts and alternative cost rules: An economic analysis," International Review of Law and Economics, Elsevier, Elsevier, vol. 3(1), pages 3-26, June.
  7. Emons, Winand, 2000. "Expertise, contingent fees, and insufficient attorney effort," International Review of Law and Economics, Elsevier, Elsevier, vol. 20(1), pages 21-33, March.
  8. Lynk, William J, 1990. "The Courts and the Market: An Economic Analysis of Contingent Fees in Class-Action Litigation," The Journal of Legal Studies, University of Chicago Press, University of Chicago Press, vol. 19(1), pages 247-60, January.
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Cited by:
  1. Baumann, Florian & Friehe, Tim, 2014. "On discovery, restricting lawyers, and the settlement rate," DICE Discussion Papers 155, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  2. Bruno Deffains & Eric Langlais, 2011. "Informational Externalities and Settlements in Mass Tort Litigations," EconomiX Working Papers 2011-14, University of Paris West - Nanterre la Défense, EconomiX.
  3. Stone, Michael P. & Miceli, Thomas J., 2012. "Optimal attorney advertising," International Review of Law and Economics, Elsevier, Elsevier, vol. 32(3), pages 329-338.
  4. Lorenzo Sacconi, 2011. "The case against lawyers’ contingent fees and the misapplication of principal-agent models," European Journal of Law and Economics, Springer, Springer, vol. 32(2), pages 263-292, October.
  5. Friehe, Tim, 2010. "Contingent fees and legal expenses insurance: Comparison for varying defendant fault," International Review of Law and Economics, Elsevier, Elsevier, vol. 30(4), pages 283-290, December.
  6. Camille Chaserant & Sophie Harnay, 2013. "The regulation of quality in the market for legal services: Taking the heterogeneity of legal services seriously," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 10(2), pages 267-291, August.
  7. Florian Baumann & Tim Friehe, 2012. "Contingent fees meet the British rule: an exploratory study," Public Choice, Springer, Springer, vol. 150(3), pages 499-510, March.
  8. Baik, Kyung Hwan & Kim, In-Gyu, 2007. "Contingent fees versus legal expenses insurance," International Review of Law and Economics, Elsevier, Elsevier, vol. 27(3), pages 351-361, September.

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