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A Note on Settlements under the Contingent Fee Method of Compensating Lawyers

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Author Info
A. Mitchell Polinsky (Stanford University and National Bureau of Economic Research)
Daniel Rubinfeld (University of California, Berkeley)

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Abstract

It is commonly thought that a lawyer working under a contingent fee arrangement has an excessive motive relative to his client's interest to settle the case, leading to a lower-than-desirable settlement amount and a high settlement rate. The conventional analysis that generates this conclusion omits an important consideration that if the case were to go to trial, the lawyer would spend an inadequate amount of time on it. We demonstrate that once this effect is taken into account, the lawyer could have an insufficient motive to settle, the opposite of what is usually believed. Specifically, the lawyer's settlement demand could be too high and the resulting settlement rate too low.

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Paper provided by Berkeley Olin Program in Law & Economics in its series Berkeley Olin Program in Law & Economics, Working Paper Series with number 1020.

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Date of creation: 01 Sep 2001
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Handle: RePEc:cdl:oplwec:1020

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Gravelle, Hugh & Waterson, Michael, 1993. "No Win, No Fee: Some Economics of Contingent Legal Fees," Economic Journal, Royal Economic Society, vol. 103(420), pages 1205-20, September. [Downloadable!] (restricted)
  2. Farmer, Amy & Pecorino, Paul, 2004. "Pretrial settlement with fairness," Journal of Economic Behavior & Organization, Elsevier, vol. 54(3), pages 287-296, July. [Downloadable!] (restricted)
  3. Lucian Arye Bebchuk, 1984. "Litigation and Settlement under Imperfect Information," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 404-415, Autumn. [Downloadable!] (restricted)
  4. Rickman, Neil, 1999. "Contingent fees and litigation settlement1," International Review of Law and Economics, Elsevier, vol. 19(3), pages 295-317, September. [Downloadable!] (restricted)
  5. Thomason, Terry, 1991. "Are Attorneys Paid What They're Worth? Contingent Fees and the Settlement Process," Journal of Legal Studies, University of Chicago Press, vol. 20(1), pages 187-223, January.
  6. A. Mitchell Polinsky & Daniel Rubinfeld, 2001. "Aligning the Interests of Lawyers and Clients," Berkeley Olin Program in Law & Economics, Working Paper Series 1023, Berkeley Olin Program in Law & Economics. [Downloadable!]
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  7. Miceli, Thomas J, 1994. "Do Contingent Fees Promote Excessive Litigation?," Journal of Legal Studies, University of Chicago Press, vol. 23(1), pages 211-24, January.
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. A. Mitchell Polinsky & Daniel Rubinfeld, 2001. "Aligning the Interests of Lawyers and Clients," Berkeley Olin Program in Law & Economics, Working Paper Series 1023, Berkeley Olin Program in Law & Economics. [Downloadable!]
    Other versions:
  2. Alberto Casagrande & Marco Spallone, 2007. "Investigating the determinants of pretrial settlement rates: contingent versus non-contingent lawyers’ fees," European Journal of Law and Economics, Springer, vol. 24(1), pages 1-13, August. [Downloadable!] (restricted)
  3. Winand Emons & Nuno Garoupa, 2004. "The Economics of US-style Contingent Fees and UK-style Conditional Fees," Diskussionsschriften dp0407, Universitaet Bern, Departement Volkswirtschaft. [Downloadable!]
    Other versions:
  4. Nuno Garoupa & Fernando Gómez, 2002. "Cashing by the Hour: Why Large Law Firms Prefer Hourly Fees Over Contingent Fees," Economics Working Papers 639, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
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