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

Nuno Garoupa and Fernando Gomez-Pomar
Journal of Law, Economics, & Organization
Vol. 24, No. 2 (Oct., 2008), pp. 458-475
Published by: Oxford University Press
Stable URL: http://www.jstor.org/stable/40058174
Page Count: 18
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Cashing by the Hour: Why Large Law Firms Prefer Hourly Fees over Contingent Fees
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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)

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