The Economics of Us-Style Contingent Fees and Uk-Style Conditional Fees
14 Pages Posted: 16 May 2004
Date Written: September 2005
Under contingent fees the attorney gets a share of the judgment; 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 she has 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 her information about what is at stake more efficiently.
Keywords: Contingent fees, conditional fees, moral hazard, incentives
JEL Classification: D82, K1
Suggested Citation: Suggested Citation