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Strategic Decisions on Lawyers Compensation in Civil Disputes

We study a model of civil dispute with delegation in which a plaintiffs lawyer works on a contingent-fee basis but a defendants lawyer on an hourly fee basis. We first derive the condition under which delegation to the lawyers brings both litigants more payoffs compared with the case of no delegation. We then show that under this profitable delegation condition, the contingent-fee fraction for the plaintiffs lawyer is about one-third. Next, allowing the plaintiff to choose between the two fees, we show that under the profitable delegation condition, the plaintiff chooses the contingent fee, given that the defendant adopts the hourly fee.