Aligning the Interests of Lawyers and Clients

The potential conflict of interest between lawyers and clientsis well known. If a lawyer is paid for his time regardless ofthe outcome of the case, the lawyer may wish to bring the caseeven when it is not in the best interest of the client, mayspend more hours working on the case than the client would want,and may reject a settlement when the client would be betteroff if it were accepted. Alternatively, if the lawyer is compensatedaccording to the conventional contingent fee arrangement—underwhich he is paid a fraction of any trial award or settlementbut bears all of the cost of litigation—the lawyer mayhave an insufficient incentive to bring the case, may spendtoo little time working on it if it is brought, and may encouragea settlement when the client would be better off going to trial.In this article we propose a method of compensating lawyersthat overcomes the conflict of interest between the lawyer andthe client. Our system is a variation of the conventional contingentfee system, but, in contrast to that system, we would have thelawyer bear only a fraction of the cost of litigation—thesame fraction that the lawyer obtains of the award or settlement.We demonstrate that when the fraction of the cost that the lawyerbears equals the fraction of the award or settlement that heobtains, he will have an incentive to do exactly what a knowledgeableclient would want him to do with respect to accepting the case,spending time on the case, and settling the case. Under ourmodified contingent fee system, a third party would compensatethe lawyer for a certain fraction of his costs, in return forwhich the lawyer would pay that party an up-front fee. In thisway, the client would not bear any costs, even if the case werelost, just as under the conventional contingent fee system.