Are Lawyers Lemons? Competition Principles and Professional Regulation

Abstract

This paper discusses the relevance of information economics to the legal profession and its implications for the application of competition principles to professional regulation. The existence of information asymmetry in the lawyer/client relationship is set out, with a discussion of the way in which institutions have emerged to confront its effects, including the imposition of fiduciary obligations on lawyers, the role of professional licensing, ethical standards and structural features designed to establish professional reputation as an assurance of quality. The extension of competition policy to the legal profession, by adopting a business paradigm, rather than a professional paradigm, of the lawyer/client relationship, threatens to undermine the role of the institutions that have developed to counteract the market failure arising from information asymmetries. Competition regulators tend not to give weight to the public interests served by the administration of justice, which have effect beyond the scope of the legal services market, such as protection of rights, maintenance of the rule of law, control of the exercise of power and the significance of duties to the court.