Abstract

Fee structures determine the economic incentives for lawyer performance. A certain hourly fee promotes excessive legal work, while a contingent fee leads to insufficient attorney effort. Competition among lawyers for enhanced reputation helps mitigate these effects, though client welfare still is not maximized. Clients' monitoring of attorney conduct often is necessary, but the expense of such monitoring limits its usefulness. This study concludes that the contingent fee may be a second‐best solution to the problem of regulating lawyer performance.

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