February 14, 2006
Follow-up on Financing Litigation
Posted by Christine Hurt

Larry Ribstein analyzes whether financing litigation creates additional agency costs or reduces them.  As we know, contingency fee relationships can cause misalignments in incentives between the attorney and her clients at various points in litigation.  At the beginning, the lawyer may be more incentivized to settle because her costs are lowest at the point, but the client may wish to proceed further and get a higher settlement.  At some point, the attorney may only wish to settle if the settlement is high because her costs have become quite high.  The client, however, may be tired of the litigation and want to go home.  The big question is whether spreading the attorney's risk will minimize these misalignments or make them more pronounced. 

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