Search, bargaining, and signalling in the market for legal services

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Article
Author/s: 
Andrew F. Daughety andJennifer F. Reinganum
The RAND Journal of Economics
Issue number: 
1
Year: 
2013
Journal pages: 
82–103
Over the last eight centuries, lawyers in common law countries have generally been precluded from buying their clients’ cases. Recently, a number of economists and lawyers have argued that sale should be allowed so as to eliminate moral hazard, particularly when contingent fees are used; this argument is based on full-information reasoning. However, if the lawyer has private information about the case value, then compensation demands potentially signal this value when the client can search over lawyers. We provide a formal model and a family of computational examples that show that allowing (possibly partial) purchase can reduce expected social efficiency.
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