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

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  • Polinsky, A. Mitchell
  • Rubinfeld, Daniel L.

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.

Suggested Citation

  • Polinsky, A. Mitchell & Rubinfeld, Daniel L., 2001. "A Note on Settlements under the Contingent Fee Method of Compensating Lawyers," Berkeley Olin Program in Law & Economics, Working Paper Series qt2vz8x310, Berkeley Olin Program in Law & Economics.
    • Handle: RePEc:cdl:oplwec:qt2vz8x310
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    References listed on IDEAS

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    1. Lucian Arye Bebchuk, 1984. "Litigation and Settlement under Imperfect Information," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 404-415, Autumn.
    2. Gravelle, Hugh & Waterson, Michael, 1993. "No Win, No Fee: Some Economics of Contingent Legal Fees," Economic Journal, Royal Economic Society, vol. 103(420), pages 1205-1220, September.
    3. Rickman, Neil, 1999. "Contingent fees and litigation settlement1," International Review of Law and Economics, Elsevier, vol. 19(3), pages 295-317, September.
    4. Miceli, Thomas J, 1994. "Do Contingent Fees Promote Excessive Litigation?," The Journal of Legal Studies, University of Chicago Press, vol. 23(1), pages 211-224, January.
    5. Thomason, Terry, 1991. "Are Attorneys Paid What They're Worth? Contingent Fees and the Settlement Process," The Journal of Legal Studies, University of Chicago Press, vol. 20(1), pages 187-223, January.
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    Cited by:

    1. Polinsky, A. Mitchell & Rubinfeld, Daniel L., 2001. "Aligning the Interests of Lawyers and Clients," Berkeley Olin Program in Law & Economics, Working Paper Series qt2kz8r3j1, Berkeley Olin Program in Law & Economics.

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