Question

Q1.

A personal-injury lawyer works as an agent for his injured plaintiff. The expected award from the trial (taking into account the plaintiff ’s probability of prevailing and the damage award if she prevails) is L, where L is the lawyer’s effort. Effort costs the lawyer (?^(2))/2.

a. What is the lawyer’s effort, his surplus, and the plaintiff ’s surplus in equilibrium when the lawyer obtains the customary 1/3 contingency fee (i.e., the lawyer gets 1/3 of the award if the plaintiff prevails)?

b. Repeat part (a) for a general contingency fee of c.

c. What is the optimal contingency fee from the plaintiff ’s perspective? Compute the associated surpluses for the lawyer and plaintiff.

Answer 1

Kindly upvote:)