Managerial Economics 2nd Edition by William Boyes

Exercise 1

Personal injury lawyers may be paid a contingency fee equal to a percentage of the amount awarded. The lawyer receives payment only if his or her client wins the case and is awarded a sum of money. Lawyers in other types of cases are often paid on an hourly basis. Use the principal-agent relationship to assess the merits and drawbacks of each type of fee arrangement from the client's (i.e., the principal's) perspective. Be sure to discuss incentive effects.