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The Economic Research Institute, Stockholm School of Economics SSE/EFI Working Paper Series in Economics and Finance

No 126:
In Defense of Lawyers. Moral Hazard as an Aid to Cooperation

Karl Wärneryd ()

Abstract: This paper studies strategic delegation in two-player contests for an indivisible prize (as in, e.g. litigation) where one party's probability of winning is determined by the relative investments of both. Even though neither player stands to gain anything from the possibility of one player committing himself to an investment level, both players ex ante prefer compulsory representation by agents (e.g. lawyers) whose efforts are unobservable. Thus this paper points out a role for delegation with moral hazard in facilitating cooperation.

Keywords: Strategic delegation; contests; moral hazard; lawyer-client relationship; (follow links to similar papers)

JEL-Codes: C72; D72; D82; K41; (follow links to similar papers)

11 pages, September 1996

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This paper is published as:
Wärneryd, Karl, (2000), 'In Defense of Lawyers. Moral Hazard as an Aid to Cooperation', Games and Economic Behavior, Vol. 33, pages 145-158



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