Suppose a victim suffers $100,000 in harm as the result of an injurer's negligence. However, it will take effort by the attorney to recover damages on behalf of her client, the victim, which means the court's verdict at trial is a function of the effort exercised by the victim's attorney. Suppose the attorney can exercise three levels of effort: high, medium, and low. When the attorney exercises high effort, the opportunity cost to the attorney is $30,000, but the court returns a victim's verdict for $100,000. If the attorney exercises medium effort, the opportunity cost to the attorney is $20,000, and the court returns a victim's verdict in the amount of $85,000. Finally, if the attorney exercises low effort, the opportunity cost to the attorney is $10,000, and the court only returns a victim's verdict in the amount of $40,000.
Suppose the contingency fee is 30%, i.e., the attorney receives 30% of the victim's verdict as her salary, while the victim retains the remaining 70% of the verdict as her award.
- What is the efficient level of effort by the attorney? (Write "high", "medium", or "low")
- What level of effort will the attorney exercise when the contingency fee is 30%? (Write "high", "medium", or "low")
- How much will the victim take home as her awardafterthe attorney is paid her 30% contingency fee?
- What level of effort will the attorney exercise when she is paid a fixed, flat fee of $20,000, which is not contingent upon the outcome of trial? (Write "high", "medium", or "low")
- How much will the victim take home as her awardafterthe attorney is paid a fixed, flat fee of $20,000?