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The optimality of contingent fees in the agency problem of litigation

Authors Wang, Susheng
Issue Date 2008
Source International review of law and economics, v. 28, (1), 2008, MAR, p. 23-31
Summary Linear contracts are of particular interest to economists. They have a simple structure, yet they are very popular in practice. In this regard, plaintiff-lawyer contractual relationships are of particular interest. Lawyers' fees are mostly paid by a sharing rule and they are typically a fixed proportion of the recovery across all lawsuits of the same type and this fixed proportion typically stays constant for many years. Such a simple and stable form of contract is puzzling to contract theorists. This paper presents a simple agency model with a risk-averse principal and a risk-neutral agent. We show that the observed puzzling features of contracts in litigation are in fact optimal behaviors, if a lawyer's effort has a constant marginal cost. (C) 2007 Elsevier Inc. All rights reserved.
ISSN 0144-8188
Rights International Review of Law and Economics © copyright (2008) Elsevier. The Journal's web site is located at
Language English
Format Article
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