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Disregarding the Attorney's Advice: An Agency Perspective

Listed author(s):
  • Finkle Aaron

    (California State University-San Marcos Santa Clara University)

  • Shin Dongsoo

    (California State University-San Marcos Santa Clara University)

Using an agency model, we study the contract between a plaintiff and an attorney. The plaintiff hires the attorney to investigate the case and provide advice as to the profitability of trial versus accepting a defendants settlement offer. The attorneys investigation is costly and remains unverified if the plaintiff accepts settlement. Thus, the attorney has an incentive to suggest settlement without investigating the case. Our analysis reveals that the plaintiff sometimes proceeds with trial against the attorneys advice to accept the settlement offer despite knowing the attorneys advice to be accurate. Furthermore, when the plaintiff cannot commit to a trial/settlement strategy, disregarding the attorneys advice may take place more frequently. We also show that with larger settlement offers, the plaintiff pursues trial more often.

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Article provided by De Gruyter in its journal Review of Law & Economics.

Volume (Year): 6 (2010)
Issue (Month): 2 (September)
Pages: 197-217

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Handle: RePEc:bpj:rlecon:v:6:y:2010:i:2:n:4
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  1. 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.
  2. Dominique M. Demougin & Devon A. Garvie, 1991. "Contractual Design with Correlated Information under Limited Liability," RAND Journal of Economics, The RAND Corporation, vol. 22(4), pages 477-489, Winter.
  3. Finkle, Aaron & Shin, Dongsoo, 2007. "Conducting inaccurate audits to commit to the audit policy," International Journal of Industrial Organization, Elsevier, vol. 25(2), pages 379-389, April.
  4. Lucian Arye Bebchuk, 1984. "Litigation and Settlement under Imperfect Information," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 404-415, Autumn.
  5. Kim C. Border & Joel Sobel, 1987. "Samurai Accountant: A Theory of Auditing and Plunder," Review of Economic Studies, Oxford University Press, vol. 54(4), pages 525-540.
  6. Daughety, Adnrew F & Reinganum, Jennifer F, 1993. "Endogenous Sequencing in Models of Settlement and Litigation," Journal of Law, Economics and Organization, Oxford University Press, vol. 9(2), pages 314-348, October.
  7. Jue-Shyan Wang, 2007. "Fee-Shifting Rules in Litigation with Contingency Fees," Journal of Law, Economics and Organization, Oxford University Press, vol. 23(3), pages 519-546, October.
  8. 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 349-367, October.
  9. Sobel, Joel, 1993. "Information Control in the Principal-Agent Problem," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(2), pages 259-269, May.
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