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Journal of Economics

, Volume 127, Issue 2, pp 99–124 | Cite as

Attorney fees in repeated relationships

  • Brad Graham
  • Jack RoblesEmail author
Article
  • 95 Downloads

Abstract

We investigate contracts between a law firm and a corporate client involved in a repeated relationship. In contrast to the previous literature pertaining to one-time interactions between clients and attorneys, we find that the contingent fee is not the best arrangement. Rather, the contingent fee is dominated by a contract which, we argue, an outside observer could not distinguish from simple hourly fee contract. This contract includes an hourly fee equal to the law firm’s opportunity cost, a lump sum, and a retention function. The lump sum payment is independent of the number of hours worked by the law firm and the outcome of the case. The repeated nature of the relationship allows the client to create a contract where the desire to maintain the relationship induces the law firm to exert the optimal level of effort in the current case.

Keywords

Legal services Contract Contingent fee Repeated relationship 

JEL Classification

K40 K41 L14 

Supplementary material

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Copyright information

© Springer-Verlag GmbH Austria, part of Springer Nature 2018

Authors and Affiliations

  1. 1.Department of EconomicsGrinnell CollegeGrinnellUSA
  2. 2.School of Economics and FinanceVictoria University of WellingtonWellingtonNew Zealand

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