A Note on Settlements Under the Contingent Fee Method of Compensating Lawyers
Posted: 30 May 2003
It is commonly thought that a lawyer working under a contingent fee arrangement has an excessive motive - relative to his client's interest - to settle the case, leading to a lower-than-desirable settlement amount and a high settlement rate. The conventional analysis that generates this conclusion omits an important consideration - that if the case were to go to trial, the lawyer would spend an inadequate amount of time on it. We demonstrate that once this effect is taken into account, the lawyer could have an insufficient motive to settle, the opposite of what is usually believed. Specifically, the lawyer's settlement demand could be too high and the resulting settlement rate too low.
Note: For reprints, contact Randy Mont-Reynaud, Administrative Director, John M. Olin Program, Stanford Law School, 559 Nathan Abbott Way, Stanford CA 94305-8610. Mailto:Randym@stanford.edu
Keywords: litigation, contingent fee, lawyer compensation, trial versus settlement, conflict of interest between lawyer and client
JEL Classification: K41
Suggested Citation: Suggested Citation