DP4473 | The Economics of US-Style Contingent Fees and UK-Style Conditional Fees

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Under contingent fees the attorney gets a share of the judgement; under conditional fees the lawyer gets an upscale premium if the case is won which is, however, unrelated to the adjudicated amount. We compare conditional and contingent fees in a principal-agent framework where the lawyer chooses unobservable effort after they have observed the amount at stake. Contingent fees provide better incentives than conditional fees independently of whether upfront payments are restricted to be non-negative or not. Under contingent fees the attorney uses their information about what is at stake more efficiently.