I posed an incredibly boring hypothetical yesterday while my brain was on assignment in parts unknown, leaving my automaton husk of a body mindlessly typing away on my keyboard. This was the hypo:

First, consider that you are a partner with a client who wishes to pay a flat fee, or fee cap, for a particular project. Second, assume that each lawyer on the team bills hourly time that counts against that fee cap or flat fee. Each lawyer is responsible for a certain number of hours per month (for all projects) against which they are reviewed at the end of the year with respect to salary negotiations.

With me so far? All right, now assume that the client will pay your firm a bonus if you come in under the fee cap, say a 10% bonus. Finally, assume that your team of lawyers consists of ten associates, to whom you have promised bonuses if the project can come in under the fee cap.

What happens? Will the project come in under budget if all the associates’ hours are counted?

Might as well follow through with it. So, does the project come in under the cap? The answer is, of course, no.

Let's pretend I'm an associate on the project team. If I just work like normal and report my hours, then I am that much closer to making my numbers for that month, a powerful incentive since this is tied into my salary.

If, however, I underreport my numbers (partners call this being efficient), there is a possibility that I will get a bonus, if all the other associates do the same thing. Assuming no collaborative deal between the associates, one would assume that they will take the sure bet and report their hours normally.

Now, you can vary this by raising or lowering each incentive, and you can alter the result by allowing the associates to make a binding deal. However, the bottom line in the hypothetical I posed is that if you look at self-interest alone, the associate will probably make sure that their numbers get counted first as opposed to underreporting and hoping that everyone else also plays nice.

Make any sense? This is a poorly-thought-out adaptation of some game theory classics, which I never really learned well enough to model mathematically. Good reason, too. My math skills, among other things, suck.