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Lawyer Fee Arrangements and Litigation Outcomes: An Auction-Theoretic Perspective


  • Yannick Gabuthy
  • Pierre-Henri Morand


Many jurisdictions in Europe foresee the opportunity to allow the use of pay-forperformance (outcome-based) contracts in lawyer-client relationships, via the socalled contingent/conditional fees. In this article, we analyze the welfare implications of such fee regimes – regarding their effects on litigation outcomes – by modeling the lawsuit as an auction. The criteria for regime comparison are litigation costs, lawyers’ profits, and parties’ incentives to reach a pre-trial settlement. The main result shows that switching from hourly to outcome-based fees may increase the trial costs and the lawyers’ profits, and enhance the likelihood of settlement (by decreasing the litigants’ expected utilities at trial). This last effect may challenge an important argument in favor of pay-for-performance contracts, that is the objective of promoting access to justice, which is an overriding public policy motivation behind the introduction of these remuneration systems.

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  • Yannick Gabuthy & Pierre-Henri Morand, 2019. "Lawyer Fee Arrangements and Litigation Outcomes: An Auction-Theoretic Perspective," Working Papers of BETA 2019-03, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
  • Handle: RePEc:ulp:sbbeta:2019-03

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    1. Neil Rickman & Paul Fenn & Alastair Gray, 1999. "The reform of Legal Aid in England and Wales," Fiscal Studies, Institute for Fiscal Studies, vol. 20(3), pages 261-286, September.
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    4. Winand Emons & Nuno Garoupa, 2006. "US-style contingent fees and UK-style conditional fees: agency problems and the supply of legal services," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 27(5), pages 379-385.
    5. Hyde, Charles E., 2006. "Conditional versus contingent fees: Litigation expenditure incentives," International Review of Law and Economics, Elsevier, vol. 26(2), pages 180-194, June.
    6. Lambert Eve-Angéline & Chappe Nathalie, 2014. "Litigation with Legal Aid versus Litigation with Contingent/Conditional Fees," Review of Law & Economics, De Gruyter, vol. 10(1), pages 1-21, March.
    7. Winand Emons, 2006. "Playing It Safe with Low Conditional Fees versus Being Insured by High Contingent Fees," American Law and Economics Review, Oxford University Press, vol. 8(1), pages 20-32.
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    13. Hay, Bruce L, 1996. "Contingent Fees and Agency Costs," The Journal of Legal Studies, University of Chicago Press, vol. 25(2), pages 503-533, June.
    14. Parisi, Francesco, 2002. "Rent-seeking through litigation: adversarial and inquisitorial systems compared," International Review of Law and Economics, Elsevier, vol. 22(2), pages 193-216, August.
    15. Patricia Munch Danzon, 1983. "Contingent Fees for Personal Injury Litigation," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 213-224, Spring.
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    More about this item


    Litigation expenditures; Pre-trial settlement; Legal fees.;

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • K40 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - General
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process

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