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An attorney fee as a signal in pretrial negotiation

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  • Jeong-Yoo Kim

Abstract

We consider the signaling role of attorney fees which have been usually assumed as exogenous in literature. We show that there exists an equilibrium in which the informed plaintiff uses both the attorney fee and the settlement demand as signals for his damage amount. If attorney service is not productive, this equilibrium yields higher social welfare than the equilibrium involving solely the settlement demand as a signal. If attorney service is productive, however, social welfare is lower in the former equilibrium. This has a policy implication that regulating attorney fees is socially desirable if the attorney service is productive. Copyright Springer-Verlag Wien 2015

Suggested Citation

  • Jeong-Yoo Kim, 2015. "An attorney fee as a signal in pretrial negotiation," Journal of Economics, Springer, vol. 114(1), pages 75-102, January.
    • Handle: RePEc:kap:jeczfn:v:114:y:2015:i:1:p:75-102
    DOI: 10.1007/s00712-014-0395-3
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    References listed on IDEAS

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    1. Kathryn E. Spier, 1994. "Pretrial Bargaining and the Design of Fee-Shifting Rules," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 197-214, Summer.
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    4. Dana, James D, Jr & Spier, Kathryn E, 1993. "Expertise and Contingent Fees: The Role of Asymmetric Information in Attorney Compensation," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 9(2), pages 349-367, October.
    5. Andrew F. Daughety & Jennifer F. Reinganum, 1995. "Keeping Society in the Dark: On the Admissibility of Pretrial Negotiations as Evidence in Court," RAND Journal of Economics, The RAND Corporation, vol. 26(2), pages 203-221, Summer.
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    7. Jennifer F. Reinganum & Louise L. Wilde, 1986. "Settlement, Litigation, and the Allocation of Litigation Costs," RAND Journal of Economics, The RAND Corporation, vol. 17(4), pages 557-566, Winter.
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    Cited by:

    1. Brad Graham & Jack Robles, 2019. "Attorney fees in repeated relationships," Journal of Economics, Springer, vol. 127(2), pages 99-124, July.

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    More about this item

    Keywords

    Pretrial negotiation; Settlement demand; Attorney fee; Signal; K13;
    All these keywords.

    JEL classification:

    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics

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