Disregarding the Attorney's Advice: An Agency Perspective

Using an agency model, we study the contract between a plaintiff and an attorney. The plaintiff hires the attorney to investigate the case and provide advice as to the profitability of trial versus accepting a defendants settlement offer. The attorneys investigation is costly and remains unverified if the plaintiff accepts settlement. Thus, the attorney has an incentive to suggest settlement without investigating the case. Our analysis reveals that the plaintiff sometimes proceeds with trial against the attorneys advice to accept the settlement offer despite knowing the attorneys advice to be accurate. Furthermore, when the plaintiff cannot commit to a trial/settlement strategy, disregarding the attorneys advice may take place more frequently. We also show that with larger settlement offers, the plaintiff pursues trial more often.