Working Paper: CEPR ID: DP4473
Authors: Winand Emons; Nuno Garoupa
Abstract: Under contingent fees the attorney gets a share of the judgement; 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 they have 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 their information about what is at stake more efficiently.
Keywords: conditional fees; contingent fees; incentives; moral hazard
JEL Codes: D82; K10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Contingent fees (J33) | Lawyer's effort exerted in a case (K41) |
| Conditional fees (K12) | Lawyer's effort exerted in a case (K41) |
| Information asymmetry (D82) | Lawyer's decision-making process (K41) |
| Contingent fees (J33) | Case success rates (C52) |
| Conditional fees (K12) | Case success rates (C52) |
| Contingent fees (J33) | Surplus of the contract (D86) |
| Conditional fees (K12) | Likelihood of dropping cases (K41) |