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Cashing by the Hour: Why Large Law Firms Prefer Hourly Fees over Contingent Fees

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  • Fernando Gomez-Pomar

Abstract

Large law firms seem to prefer hourly fees over contingent fees. This article provides a moral hazard explanation for this pattern of behavior. Contingent legal fees tend to align the interests of the attorney with those of the client but not necessarily with those of the partnership. We show that the choice of hourly fees is a solution to a common agency problem. The article also discusses other possible explanations. ( JEL J4, K1, K2, K4) The Author 2007. Published by Oxford University Press on behalf of Yale University. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org, Oxford University Press.

Suggested Citation

  • Fernando Gomez-Pomar, 2008. "Cashing by the Hour: Why Large Law Firms Prefer Hourly Fees over Contingent Fees," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 24(2), pages 458-475, October.
    • Handle: RePEc:oup:jleorg:v:24:y:2008:i:2:p:458-475
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    File URL: http://hdl.handle.net/10.1093/jleo/ewm063
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    Citations

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    Cited by:

    1. Ghazala Azmat & Rosa Ferrer, 2017. "Gender Gaps in Performance: Evidence from Young Lawyers," Journal of Political Economy, University of Chicago Press, vol. 125(5), pages 1306-1355.
    2. Bradley Graham & Jack Robles, 2014. "Moral hazard and legal services contracts," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 61(3), pages 219-230, September.
    3. Choné, Philippe & Linnemer, Laurent, 2010. "Optimal litigation strategies with observable case preparation," Games and Economic Behavior, Elsevier, vol. 70(2), pages 271-288, November.
    4. Chris Kuo, 2013. "Billing Abuses by the Experts: A Game-Theoretic Analysis of Legal Services," Journal of Economics and Management, College of Business, Feng Chia University, Taiwan, vol. 9(1), pages 13-30, January.
    5. Brad Graham & Jack Robles, 2019. "Attorney fees in repeated relationships," Journal of Economics, Springer, vol. 127(2), pages 99-124, July.
    6. Zamir Eyal & Medina Barak & Segal Uzi, 2014. "Who Benefits from the Uniformity of Contingent Fee Rates?," Review of Law & Economics, De Gruyter, vol. 9(3), pages 357-387, January.
    7. Malmendier, Ulrike M. & Karsten, Christel & Sautner, Zacharias, 2020. "Lawyer Expertise and Contract Design – Evidence from M&A Negotiations," CEPR Discussion Papers 14936, C.E.P.R. Discussion Papers.
    8. Brad Graham & Jack Robles, 2019. "Attorney fees in repeated relationships," Journal of Economics, Springer, vol. 127(2), pages 99-124, July.

    More about this item

    JEL classification:

    • J4 - Labor and Demographic Economics - - Particular Labor Markets
    • K1 - Law and Economics - - Basic Areas of Law
    • K2 - Law and Economics - - Regulation and Business Law
    • K4 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior

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