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Cashing by the hour: Why large law firms prefer hourly fees over contingent fees
Garoupa, Nuno; Gómez, Fernando
Universitat Pompeu Fabra. Departament d'Economia i Empresa
Large law firms seem to prefer hourly fees over contingent fees. Thispaper provides a moral hazard explanation for this pattern of behavior.Contingent legal fees align the interests of the attorney with those ofthe client, but not necessarily with those of the partnership. We showthat the choice of hourly fees is a solution to an agency problem withmultiple principals, where the interests of one principal (law firm)collide with the interests of the other principal (client).
Business Economics and Industrial Organization
law firms
legal fees
moral hazard
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