International Management for IBA Tutorial Assignment 5.docx...

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International Management for IBA Assignment 5: Lawyers and clients 1. The relationship between a client and a lawyer is an agency relationship, because the lawyer makes decisions on behalf of the client. The client is the principal and the lawyer is the agent. The potential agency costs come from the principal, in this case, the client. The agency costs come from the principal, because both parties have conflicting interests, furthermore the information is unevenly distributed, because the agent has much more extensive knowledge than the principal. Principal has to spend more money to ensure that agent is acting in his best interests. 2. The risk profile of a lawyer who is accepting “hourly” contracts is low, and, therefore, the lawyer is risk-averse. The lawyer wants to receive a guaranteed payment on an hourly basis, therefore putting less effort in his job and stretching the period of his employment to maximize his wealth.
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