Legal Barriers to Innovation: The Growing Economic Cost of Professional Control Over Corporate Legal Markets

47 Pages Posted: 12 Mar 2008 Last revised: 16 Nov 2013

Gillian K. Hadfield

USC Law School and Department of Economics

Abstract

U.S. legal markets are among the most heavily regulated in the economy, with regulation over almost all aspects of legal production exercised in a fragmented and unclear regime by individual state bar associations and state courts, largely driven by decisions of the American Bar Association. These restrictions, presented as ethical regulation by an independent and self-governing body committed to the public interest, control the scope of regulation (what counts as a legal product), who can produce legal products, what law schools must teach, which markets firms that produce legal products can serve, how firms that provide legal products must be organized and financed and many of the terms that must be in a legal services contract. While the implications of professional control over legal markets for price have long been a concern, I argue in this paper that the more costly result of professional regulation, specifically of corporate legal markets, is the impediment to innovation in legal products and services. The obstacles to innovation arise from the top-down standardization of legal products, the homogeneity of the legal ideas pool, restrictions imposed on the achievement of economies of scale and scope and restrictions on methods of financing legal innovation. Substantial deregulation of legal markets in the U.S., which has already been implemented in the U.K. and is likely to spread throughout Europe through the application of antitrust principles to legal provision, is essential to grow the necessary legal infrastructure to support transition to new economic models and globalized competition.

Keywords: innovation, legal profession, legal markets, regulation, antitrust, judicial independence, legal independence

JEL Classification: J44, K2, K4, L43, L44, O31

Suggested Citation

Hadfield, Gillian K., Legal Barriers to Innovation: The Growing Economic Cost of Professional Control Over Corporate Legal Markets. Stanford Law Review, Vol. 60, p. 102, April 2008; Univ. of Southern California Center in Law, Economics and Organization Research Paper No. C08-7; USC Legal Studies Research Paper No. 08-8. Available at SSRN: https://ssrn.com/abstract=1104902

Gillian K. Hadfield (Contact Author)

USC Law School and Department of Economics ( email )

699 Exposition Boulevard
Los Angeles, CA 90089
United States
213-821-6793 (Phone)
213-740-5502 (Fax)

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