A Note on Settlements under the Contingent Fee Method of Compensating Lawyers
It is commonly thought that a lawyer working under a contingent fee arrangement has an excessive motive â€” relative to his clientâ€™s interest â€” 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 â€” 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 lawyerâ€™s settlement demand could be too high and the resulting settlement rate too low.
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