Do Lawyers Affect Legal Disputes in Italy? An Instrumental Variables Approach

Abstract

The legal system can be treated as a large market where justice is traded in terms of legal disputes. Empirical evidence underlines that demand for legal assistance raises over time, despite high costs connected to filing, not only in Italy but also elsewhere in Europe. Moreover, the demand for legal services increases over time despite the high costs of filing. We argue that such increase is due to plaintiffs’ unawareness about the true cost (including delay) of filing. The reason fundamental to this situation is represented by the asymmetric information, which characterizes this environment. The client usually has poor information to value his chance for winning a dispute; hence he cannot rationally and knowingly form his own demand for legal aid. Thus, there is an adverse-selection process between lawyers and their clients that may lead to an uncontrolled increase of the demand for legal services above the rational level. As we will try to prove in this paper, such situation is emphasized in places with a higher density of lawyers, since they compete with each others in order to attract potential clients. In this paper, we use an instrumental variables approach in order to demonstrate that a high number of lawyers in a geographical area plays a significant role on the demand for new legal disputes. Results provide evidence of a positive effect of lawyers on the increase of legal disputes.

Keywords: Lawyers, Legal Disputes

JEL Classification: C33, H41, K41