Suppose a plaintiff hires a lawyer to represent her in a court case.Under which of the following contracts is efficiency in risk bearing assured?
A) The lawyer is paid by the hour.
B) The lawyer receives a share of the settlement.
C) The lawyer receives a fixed fee.
D) It is impossible to determine without the degree of risk aversion for each.

Question

Quizplus · Accepted Answer

Efficiency in risk bearing depends on the risk preferences of the parties involved. Without knowing the degree of risk aversion of the plaintiff and the lawyer, it's impossible to determine which contract type assures efficiency in risk bearing. Each contract type (hourly, contingency, fixed fee) allocates risk differently between the lawyer and the client, and the efficiency of these allocations varies with their risk preferences.

Suppose a Plaintiff Hires a Lawyer to Represent Her in a Court