Ribstein Responds: Lawyer Licensing Continued

Josh Wright —  29 May 2006

In my first post on the economics of lawyer licensing (and in the comments) as well as my subsequent response to the Wilson/ Ribstein Point of Law discussion, I mentioned that this is an area where empirical evidence should add significantly to the debate since we have a good deal of variance in state restrictions on the market for legal services. Accordingly, I asked about the state of the empirical evidence on this issue. Larry Ribstein’s final entry answers my questions:

“Joyce Palomar, The War Between Attorneys and Lay Conveyancers—Empirical Evidence Says “Cease Fire!â€?, 31 Conn. L. Rev. 423 (1999) found little evidence of risk to the public from lay providers of real estate settlement services. But there’s obviously a lot more work to be done. Fred. S. McChesney & Timothy I. Muris, The Effect of Advertising on the Quality of Legal Services, 65 A.B.A. J. 1503 (1979) and Advertising and the Price and Quality of Legal Services: The Case for Legal Clinics, 1979 Am. B. Found. Res. J. 179 found that a legal clinic using advertising in high-volume practice reduced costs without compromising quality.”

Thanks Larry. As Dave Hoffman points out, measurement problems can pose difficulties for identifying the impact of varying levels of lawyer licensing on the quality of legal services. Despite these difficulties, the evidence supports what economic theory would predict: (1) cartels increase prices; and (2) licensure does not increase quality because of repuational sanctions and private alternatives. In addition to the papers that Larry cites (and as I note in the comments to Dave’s post), this summary of the literature (though a bit outdated) describes the state of the literature as follows: “Most of the evidence on this issue, however, suggests that licensing has, at best, a neutral effect on quality and may even harm consumers.”

Neither of these results is surprising from an economic perspective. The former result is exactly what is expects from a cartel which artificially restricts output. The latter result calls into question whether there are any offsetting benefits of the cartel arrangement. Finally, I agree with Larry that there is obviously a lot of useful empirical work to be done in this area which can exploit the variation in state UPL statutes to identify the impact of lawyer licensing.