An Economic Analysis of Conflicts of Interest Regulation
Posted: 31 Jan 1997
This paper models the ethical rules applicable to attorney conflicts of interest as default terms for the attorney-client relationship which the legal system supplies in the absence of complete contracting by the parties. Following an approach which is standard in the literature, we model the attorney-client relationship as an agency relationship characterized by large information and monitoring difficulties. We conclude that, in general, a regime of granting the client the right to bar subsequent, conflicting representation of other parties by the attorney, subject to ex post renegotiation by the attorney and client, represents an optimal approach to the problem. Economic theory predicts, however, that there should be a threshold of harm to the client, below which the attorney should be allowed to represent another party without obtaining the first client's consent. In general, the ABA Model Code of Professional Responsibility and Model Rules of Professional Conduct adopt a regime of conflicts regulation that is quite consistent with economic theory. We suggest that the bar has an incentive to adopt efficient rules in this area because its interests are closely aligned with the public's: both have an interest in facilitating efficient contracting between attorney and client -- the bar, to increase profits; the public, to reduce costs.
JEL Classification: K12, K49
Suggested Citation: Suggested Citation