Contingent fees and litigation settlement

Policy makers and static economic models often argue that contingent fees cause lawyers to settle cases sooner than their clients would like, so as to avoid accumulating costs of bargaining. Yet, in a dynamic setting, a willingness to sink costs can be a strategic advantage when seeking to establish the credibility of threats. This paper shows that this can be the case for cost-bearing contingent fee lawyers who, through such "hard bargaining," may increase the settlement offers they receive from defendants. However, two opposing tendencies are identified, which leave the overall effects on settlement timing ambiguous and plaintiffs often failing to benefit from this strategy. (C) 1999 by Elsevier Science Inc.