Incentive Structures for Class Action Lawyers

This article examines the way in which an attorney fee structure that maximizes the expected recovery for class members in a class action may be implemented in practice. Using a mechanism design approach, we demonstrate that if the court can observe the lawyer's effort, then the optimal payoff...

Full description

Saved in:
Bibliographic Details
Published in:Journal of law, economics, & organization economics, & organization, 2004-04, Vol.20 (1), p.102-124
Main Authors: Klement, Alon, Neeman, Zvika
Format: Article
Language:English
Subjects:
Attorneys
Attorneys fees
Class action lawsuits
Contingent fees
Contract incentives
Contracts
Economic theory
Fee schedule
Fees
Fees & charges
Incentive pay
Litigation
Moral hazard
Studies
Citations: Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:This article examines the way in which an attorney fee structure that maximizes the expected recovery for class members in a class action may be implemented in practice. Using a mechanism design approach, we demonstrate that if the court can observe the lawyer's effort, then the optimal payoff to the class may be realized using the lodestar method—a contingent hourly fee arrangement that is currently practiced in many class actions—but only if the hourly contingent fee is multiplied by a declining, as opposed to the practiced constant, multiplier. If the court cannot observe the lawyer's effort, then in some circumstances the optimal payoff to the class may still be realized by offering the lawyer a menu of fee schedules from which she has to choose one. Each fee schedule consists of a fixed percentage and a threshold amount below which the lawyer earns no fee, with the threshold increasing with the chosen percentage. The lawyer is paid the fixed percentage chosen only for amounts won above the threshold.
ISSN:8756-6222
1465-7341
1465-7341
DOI:10.1093/jleo/ewh025