Cashing by the hour: Why large law firms prefer hourly fees over contingent fees

Nuno Garoupa and Fernando Gómez

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

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 (search for similar items in EconPapers)
JEL-codes: D8 K4 L8 (search for similar items in EconPapers)
Date: 2002-07
New Economics Papers: this item is included in nep-law
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:upf:upfgen:639

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