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The Economics of US-Style Contingent Fees and UK-Style Conditional Fees

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  • Emons, Winand
  • Garoupa, Nuno

Abstract

Under contingent fees the attorney gets a share of the judgement; 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 they have 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 their information about what is at stake more efficiently.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4473.

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Date of creation: Jul 2004
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Handle: RePEc:cpr:ceprdp:4473

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Keywords: conditional fees; contingent fees; incentives; moral hazard;

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References

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  1. Polinsky, A. Mitchell & Rubinfeld, Daniel L., 2002. "A note on settlements under the contingent fee method of compensating lawyers," International Review of Law and Economics, Elsevier, vol. 22(2), pages 217-225, August.
  2. Emons, Winand, 2000. "Expertise, contingent fees, and insufficient attorney effort," International Review of Law and Economics, Elsevier, vol. 20(1), pages 21-33, March.
  3. Miceli, Thomas J, 1994. "Do Contingent Fees Promote Excessive Litigation?," The Journal of Legal Studies, University of Chicago Press, vol. 23(1), pages 211-24, January.
  4. 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, vol. 9(2), pages 349-67, October.
  5. Kirstein, Roland & Rickman, Neil, 2002. ""Third Party Contingency" contracts in settlement and litigation," Berkeley Olin Program in Law & Economics, Working Paper Series qt6vn9877z, Berkeley Olin Program in Law & Economics.
  6. Hay, Bruce L, 1996. "Contingent Fees and Agency Costs," The Journal of Legal Studies, University of Chicago Press, vol. 25(2), pages 503-33, June.
  7. A. Mitchell Polinsky & Daniel L. Rubinfeld, 2003. "Aligning the Interests of Lawyers and Clients," American Law and Economics Review, Oxford University Press, vol. 5(1), pages 165-188.
  8. 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.
  9. Halpern, P. J. & Turnbull, S. M., 1983. "Legal fees contracts and alternative cost rules: An economic analysis," International Review of Law and Economics, Elsevier, vol. 3(1), pages 3-26, June.
  10. Hay, Bruce L, 1997. "Optimal Contingent Fees in a World of Settlement," The Journal of Legal Studies, University of Chicago Press, vol. 26(1), pages 259-78, January.
  11. Winand Emons, 2007. "Conditional versus contingent fees," Oxford Economic Papers, Oxford University Press, vol. 59(1), pages 89-101, January.
  12. Santore, Rudy & Viard, Alan D, 2001. "Legal Fee Restrictions, Moral Hazard, and Attorney Rights," Journal of Law and Economics, University of Chicago Press, vol. 44(2), pages 549-72, October.
  13. Alon Klement, 2004. "Incentive Structures for Class Action Lawyers," Journal of Law, Economics and Organization, Oxford University Press, vol. 20(1), pages 102-124, April.
  14. Rickman, Neil, 1994. "The Economics of Contingency Fees in Personal Injury Litigation," Oxford Review of Economic Policy, Oxford University Press, vol. 10(1), pages 34-50, Spring.
  15. Miceli, Thomas J & Segerson, Kathleen, 1991. "Contingent Fees for Lawyers: The Impact on Litigation and Accident Prevention," The Journal of Legal Studies, University of Chicago Press, vol. 20(2), pages 381-99, June.
  16. 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, vol. 19(1), pages 247-60, January.
  17. Shavell, Steven, 1997. "The Fundamental Divergence between the Private and the Social Motive to Use the Legal System," The Journal of Legal Studies, University of Chicago Press, vol. 26(2), pages 575-612, June.
  18. Rickman, Neil, 1999. "Contingent fees and litigation settlement1," International Review of Law and Economics, Elsevier, vol. 19(3), pages 295-317, September.
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Citations

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Cited by:
  1. Chopard, Bertrand & Cortade, Thomas & Langlais, Eric, 2008. "Trial and settlement negotiations between asymmetrically skilled parties," MPRA Paper 8995, University Library of Munich, Germany.
  2. Emons, Winand, 2005. "Playing it Safe with Low Conditional Fees versus Being Insured by High Contingent Fees," CEPR Discussion Papers 4841, C.E.P.R. Discussion Papers.
  3. Winand Emons, 2007. "Conditional versus contingent fees," Oxford Economic Papers, Oxford University Press, vol. 59(1), pages 89-101, January.
  4. 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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