Aligning the Interests of Lawyers and Clients

Innovation and Economic Growth and Competition Policy and Antitrust

Article Snapshot

Author(s)

A. Mitchell Polinsky

Source

American Law & Economics Review, Vol. 5, pp. 165-188, Spring 2003

Summary

This paper looks at problems with the way clients pay lawyers.

Policy Relevance

A new fee rule could reduce lawyers’ interest in managing cases to earn more money for themselves and less for the client.

Main Points

  • When a lawyer is paid by the hour, he might be tempted to spend more time on the case than it really needs.

  • When a lawyer is paid a contingency fee, he gets a percentage of what the client wins but pays all litigation costs, and can spend too little time on the case to reduce his costs.

  • Both these conflicts of interest between lawyer and client would be avoided if the lawyer accepted a contingency fee, but paid only a fraction of the litigation costs. The fraction should be the same as the fraction of the winnings that he gets.
    • To avoid having the client pay any costs, as is the rule today, another party, an administrator, could compensate the lawyer for the rest of his costs in exchange for a fee paid by the lawyer.

  • With this rule, the lawyer would spend neither too much nor too little time on the case. For every hour he worked, he would earn some reward, but not have to pay too large a share of the costs.

  • The proposed fee rule would help in class-action suits, because large numbers of clients have trouble supervising their lawyer, to control the lawyers’ interest in maximizing their own profit and ignoring clients’ best interests.

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