DP4532 Conditional versus Contingent Fees

Author(s): Winand Emons
Publication Date: August 2004
Keyword(s): adverse selection, conditional fees, contingent fees, moral hazard, pooling, screening
JEL(s): D82, K10
Programme Areas: Industrial Organization
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=4532

Under contingent fees the attorney gets a share of the judgement; 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 framework where lawyers are uninformed about the clients’ cases. If there is asymmetric information about the merits of cases, in equilibrium attorneys will offer only conditional fees. If there is asymmetric information about the risk of cases, only contingent fee contracts are offered in equilibrium.