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The optimality of contingent fees in the agency problem of litigation

Authors Wang, Susheng View this author's profile
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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