CONTINGENT FEES AND AGENCY COSTS

In this article, I examine the operation of ordinary linear contingent fees in a model of litigation in which the recovery on a claim is a f unction of the lawyer's efforts, My object here is to analyze the line ar fee that maximizes the client's welfare in the presence of attorney moral hazard. I identify the optimal fee as the one that minimizes tw o agency costs: underinvestment in the claim, and attorney rents. I al so attempt to identify how the optimal linear fee varies with differen t case characteristics.