Bargaining through an Expert Attorney

Abstract:     
The following is a three-player litigation model. Previous litigation models analyze the litigation process as a two-player strategic game of incomplete information, where equilibrium usually involves a positive probability of trial. These litigation models assume the attorney and her client have the same objectives. However, an attorney paid by contingency fee may want to settle a case, even when it is not advantageous to her client, in order to avoid the cost of preparing for trial. In this paper, the plaintiff and attorney, paid by contingency fee, act as a principal and agent who are bargaining with another principal, the defendant. The attorney is able to learn part of the defendant's private information, at a lower cost than the plaintiff could. Supported by previous empirical studies, I find that as the stakes of the case rise, the range of contingency fees mutually advantageous for plaintiff and attorney falls.

JEL Classification: D83, K41

Accepted Paper Series