Working Paper: CEPR ID: DP1487
Authors: Winand Emons
Abstract: Plaintiffs have either strong or weak cases. Both cases should be taken to court, yet weak cases need more work by the attorney than strong cases. Only the attorney knows whether a case needs additional work or not; the plaintiff is forced to rely on the attorney?s recommendation. We show that under contingent fees there will generally be excessive litigation. In contrast, an hourly fee implements the efficient amount of litigation.
Keywords: litigation; contingent fees; expert services; incentives
JEL Codes: D82; K41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Contingent fees (J33) | Excessive litigation (K41) |
| Hourly fees (J33) | Efficient litigation (K41) |
| Contingent fees (J33) | Weak cases pursued excessively (P14) |
| Standard litigation generates more surplus than effort to strengthen weak cases (K41) | Non-loss making contingent fees lead to excessive litigation (K41) |
| Hourly payment (J33) | Avoid excessive litigation (K41) |
| Hourly payment (J33) | Align attorney's incentives with need for additional effort in weak cases (K41) |