An Economic Analysis of Conflicts of Interest Regulation

Posted: 31 Jan 1997

See all articles by Jonathan R. Macey

Jonathan R. Macey

Yale Law School

Geoffrey P. Miller

New York University School of Law

Abstract

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

Macey, Jonathan R. and Miller, Geoffrey P., An Economic Analysis of Conflicts of Interest Regulation. Iowa Law Review, Vol. 82, No. 3 (1997).. Available at SSRN: https://ssrn.com/abstract=10298

Jonathan R. Macey

Yale Law School ( email )

P.O. Box 208215
New Haven, CT 06520-8215
United States
+203-432-7913 (Phone)
+203-4871 (Fax)

Geoffrey P. Miller (Contact Author)

New York University School of Law ( email )

Center for the Study of Central Banks
40 Washington Square South
New York, NY 10012-1099
United States
212-998-6329 (Phone)
212-995-4590 (Fax)

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