TY - JOUR
T1 - Incentive structures for class action lawyers
AU - Klement, Alon
AU - Neeman, Zvika
N1 - Funding Information:
We thank Lucian Bebchuk, Hsueh-Ling Huynh, Steve Shavell, Kathryn Spier, and seminar participants at the Hebrew University of Jerusalem for helpful comments. Financial support from the John M. Olin Center for Law, Economics, and Business at the Harvard Law School and the Falk Institute for Economic Research is gratefully acknowledged. 1. The Agent Orange class action, for example, involved more than 2.4 million Vietnam War veterans and their family members, who claimed to suffer various injuries as a result of the veterans' exposure to the defoliant Agent Orange while in or near Vietnam. See Schuck (1987) and Ryan v. Dow Chem., 781 F. Supp. 902. 2. For a recent example see In Re Cendant Corporation Pride Litigation, 51 F. Supp. 2d 537, a securities class action that was settled for an approximate value of $340,000,000. 3. The most dramatic example is the asbestos industry, which has been exposed to numerous class actions since the 1970s, resulting in several defendants becoming insolvent. See Hensler et al. (1985) and Amchem Products v. George Windsor, 521 U.S. 591.
PY - 2004/4
Y1 - 2004/4
N2 - This article examines the way in which an attorney fee structure that maximizes the expected recovery for class members in a class action may be implemented in practice, Using a mechanism design approach, we demonstrate that if the court can observe the lawyer's effort, then the optimal payoff to the class may be realized using the lodestar method-a contingent hourly fee arrangement that is currently practiced in many class actions-but only if the hourly contingent fee is multiplied by a declining, as opposed to the practiced constant, multiplier. If the court cannot observe the lawyer's effort, then in some circumstances the optimal payoff to the class may still be realized by offering the lawyer a menu of fee schedules from which she has to choose one. Each fee schedule consists of a fixed percentage and a threshold amount below which the lawyer earns no fee, with the threshold increasing with the chosen percentage, The lawyer is paid the fixed percentage chosen only for amounts won above the threshold,.
AB - This article examines the way in which an attorney fee structure that maximizes the expected recovery for class members in a class action may be implemented in practice, Using a mechanism design approach, we demonstrate that if the court can observe the lawyer's effort, then the optimal payoff to the class may be realized using the lodestar method-a contingent hourly fee arrangement that is currently practiced in many class actions-but only if the hourly contingent fee is multiplied by a declining, as opposed to the practiced constant, multiplier. If the court cannot observe the lawyer's effort, then in some circumstances the optimal payoff to the class may still be realized by offering the lawyer a menu of fee schedules from which she has to choose one. Each fee schedule consists of a fixed percentage and a threshold amount below which the lawyer earns no fee, with the threshold increasing with the chosen percentage, The lawyer is paid the fixed percentage chosen only for amounts won above the threshold,.
UR - http://www.scopus.com/inward/record.url?scp=4344603672&partnerID=8YFLogxK
U2 - 10.1093/jleo/ewh025
DO - 10.1093/jleo/ewh025
M3 - ???researchoutput.researchoutputtypes.contributiontojournal.systematicreview???
AN - SCOPUS:4344603672
SN - 8756-6222
VL - 20
SP - 102
EP - 124
JO - Journal of Law, Economics, and Organization
JF - Journal of Law, Economics, and Organization
IS - 1
ER -