Contingent Fees, Signaling and Settlement Authority

Leshem Shmuel
Additional contact information
Leshem Shmuel: USC Law School

Review of Law & Economics, 2009, vol. 5, issue 1, 435-460

Abstract: Conventional wisdom suggests that under contingent fee contracts, attorneys have an excessive incentive to settle the case; therefore, a plaintiff should retain the authority over settlement decisions. We show, by contrast, that when the plaintiff possesses private information about the outcome of a trial and makes a take-it-or-leave-it settlement demand, delegating settlement authority to an attorney under a contingent fee contract increases the probability of settlement and the plaintiff's equilibrium payoff. We also show that contingent fee contracts with attorney control over settlement are more efficient than hourly fee contracts, as the former involve a higher probability of settlement. The intuition behind these results is that the attorney's greater reluctance to go to trial allows him to more effectively signal the plaintiff's type through the settlement demand.

Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
https://doi.org/10.2202/1555-5879.1274 (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bpj:rlecon:v:5:y:2009:i:1:n:18

Ordering information: This journal article can be ordered from
https://www.degruyter.com/journal/key/rle/html

DOI: 10.2202/1555-5879.1274

Access Statistics for this article

Review of Law & Economics is currently edited by Francesco Parisi

More articles in Review of Law & Economics from De Gruyter
Bibliographic data for series maintained by Peter Golla ().