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

  • 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)

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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File URL: http://hdl.handle.net/10.1002/mde.1269
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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
Contact details of provider: Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976

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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. Kirstein, Roland & Rickman, Neil, 2002. ""Third Party Contingency" contracts in settlement and litigation," CSLE Discussion Paper Series 2002-11, Saarland University, CSLE - Center for the Study of Law and Economics.
  3. Winand Emons, 2004. "Conditional versus Contingent Fees," Diskussionsschriften dp0409, Universitaet Bern, Departement Volkswirtschaft.
  4. Emons, Winand, 2000. "Expertise, contingent fees, and insufficient attorney effort," International Review of Law and Economics, Elsevier, vol. 20(1), pages 21-33, March.
  5. 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.
  6. 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.
  7. 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.
  8. 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.
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