Cashing by the Hour: Why Large Law Firms Prefer Hourly Fees Over Contingent Fees

UPF Working Paper No. 639

18 Pages Posted: 24 Jun 2003

See all articles by Nuno Garoupa

Nuno Garoupa

George Mason University - Antonin Scalia Law School, Faculty

Fernando Gomez-Pomar

Universitat Pompeu Fabra

Multiple version iconThere are 2 versions of this paper

Date Written: July 2002

Abstract

Large law firms seem to prefer hourly fees over contingent fees. This paper provides a moral hazard explanation for this pattern of behavior. Contingent legal fees align the interests of the attorney with those of the client, but not necessarily with those of the partnership. We show that the choice of hourly fees is a solution to an agency problem with multiple principals, where the interests of one principal (law firm)collide with the interests of the other principal (client).

Keywords: Law firms, legal fees, moral hazard, risk-sharing

JEL Classification: D8, K4, L8

Suggested Citation

Garoupa, Nuno and Gomez-Pomar, Fernando, Cashing by the Hour: Why Large Law Firms Prefer Hourly Fees Over Contingent Fees (July 2002). UPF Working Paper No. 639. Available at SSRN: https://ssrn.com/abstract=394305 or http://dx.doi.org/10.2139/ssrn.394305

Nuno Garoupa (Contact Author)

George Mason University - Antonin Scalia Law School, Faculty ( email )

3301 Fairfax Drive
Arlington, VA 22201
United States

Fernando Gomez-Pomar

Universitat Pompeu Fabra ( email )

Ramon Trias Fargas 25-27
08005 Barcelona
Spain
(34-93) 542 16 47 (Phone)
(34-93) 542 17 31 (Fax)

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