Disregarding the Attorney's Advice: An Agency Perspective
Santa Clara University - Leavey School of Business
Review of Law and Economics, Vol. 6, pp. 197-217, 2010
Using an agency model, we study the contract between a plaintiff and an attorney. The plaintiff hires the attorney to investigate the case and provide advice as to the profitability of trial versus accepting a defendant’s settlement offer. The attorney’s investigation is costly and remains unverified if the plaintiff accepts settlement. Thus, the attorney has an incentive to suggest settlement without investigating the case. Our analysis reveals that the plaintiff sometimes proceeds with trial against the attorney’s advice to accept the settlement offer despite knowing the attorney’s advice to be accurate. Furthermore, when the plaintiff cannot commit to a trial/settlement strategy, disregarding the attorney’s advice may take place more frequently. We also show that with larger settlement offers, the plaintiff pursues trial more often.
Keywords: D82, K41
JEL Classification: Plaintiff-Attorney Contract, Principal-Agent, Litigation, SettlementAccepted Paper Series
Date posted: November 8, 2010
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