DP4841 Playing it Safe with Low Conditional Fees versus Being Insured by High Contingent Fees

Author(s): Winand Emons
Publication Date: January 2005
Keyword(s): conditional fees, contingent fees, incentives, insurance, risk aversion
JEL(s): D82, K10
Programme Areas: Industrial Organization
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=4841

Under contingent fees the attorney gets a share of the judgement; under conditional fees they get 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 choose between a safe and a risky litigation strategy. Under conditional fees lawyers prefer the safe strategy, under contingent fess the risky one. Risk-averse plaintiffs prefer conditional fees over contingent fees when lawyering costs are low and vice versa for high lawyering costs.