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Attorney fees in repeated relationships

Author

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  • Brad Graham

    (Grinnell College)

  • Jack Robles

    (Victoria University of Wellington)

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.

Suggested Citation

  • Brad Graham & Jack Robles, 2019. "Attorney fees in repeated relationships," Journal of Economics, Springer, vol. 127(2), pages 99-124, July.
    • Handle: RePEc:kap:jeczfn:v:127:y:2019:i:2:d:10.1007_s00712-018-0633-1
    DOI: 10.1007/s00712-018-0633-1
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    More about this item

    Keywords

    Legal services; Contract; Contingent fee; Repeated relationship;
    All these keywords.

    JEL classification:

    • K40 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - General
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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