Estimating the Degree of the ExpertsAgency Problem: The Case of Medical Malpractice Lawyers

I empirically study the expertsagency problem in the context of lawyers and their clients. Incentives for lawyers and clients are misaligned in dispute resolution under contingency-fee arrangements where lawyers receive a fraction of the recovered payment as compensation while bearing the legal costs. Lawyers are less inclined to pursue a case than their clients because they incur all the legal costs and receive a smaller fraction of the payment. In this paper, I measure the degree to which lawyers work in the best interest of their clients. To do so, I construct a bargaining model, which nests two extreme cases lawyers working in their clientsbest interest and lawyers working in their own best interest as well as their convex combinations, and estimate the model, including the weighting parameter, using data of medical malpractice disputes. The timing of dropped cases identi\u85es the weighting parameter because cases are dropped more frequently and at earlier stages if lawyers work in their own best interest. I \u85nd that lawyers work closer to their own best interest than to their clients best interest. Finally, I compute the cost of the agency problem resulting from misaligned incentives by simulating the \u85rst-best outcome using the estimated model