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In this article, we explore the possibility that the percentage of litigations settled outside of court is affected by the degree of contingency of lawyers’ fees. In our view, a litigation is a game where not only the plaintiff and the defendant, but also their lawyers are independent players. The main consequence of this assumption is that the authority to settle is allocated endogenously to either the clients or their lawyers, depending on the value of the relevant parameters. In this game theoretical setup, (1) we compare the incentives to settle provided by contingent and non-contingent lawyers’ fees, and (2) we state the conditions under which settlement is more likely to happen.
