The Puzzle and Persistence of Biglaw Clustering

Abstract

Elite global law firms (“Biglaw”) exhibit a high degree of concentration in the costliest commercial districts of global cities, with most of the top U.S. firm HQs clustered in a few square miles in Manhattan. This pattern has persisted despite both the dispersal of Biglaw clients across less-dense, lower-cost U.S. geographies and the development of telework capacity. The stickiness of the sector’s location suggests a puzzle: law is among the occupations most conducive to remote work, yet Biglaw requires in-person work in the priciest places—paying a premium on both of its biggest expenses, salaries and real estate. How might this equilibrium be explained, and what might change it?

This article contends that firms’ locational choices can be understood as a management tradeoff between the exploitation of proven strategies and the exploration of novel and uncertain ones. The coronavirus pandemic presents an opportunity to assess the intensity of Biglaw’s preference for its traditional locational “exploit” strategy.

By requiring that firms immediately switch their employees to remote work—and sustaining that requirement for a year or more—the pandemic eliminated two managerial barriers to change. First, relative to a purely voluntary switch to telework, the mandatory and universal nature of the transition reduced the transaction costs of coordinating teams and clients. Second and related, it allowed firms to avoid problems that might attend a selective switch, such as employee adverse selection. Post-pandemic, firm managers will no longer weigh locational exploit vs. explore strategies. Rather, they will enjoy an equalized choice between two exploit options.

This article contributes a descriptive and theoretical analysis to a growing literature on the impacts of the pandemic on cities and labor markets. A Biglaw dispersal (whether via telework or office decentralization) would upend scholarly understandings of agglomeration in general and skilled scalable services in particular, with significant real-world implications. While the article expresses skepticism about that outcome, it identifies a mechanism—the replacement of an exploit vs. explore choice with two different exploit options—by which such a change might plausibly come about. Crucially, the mechanism posits innovation in management information and skill, not technology, and thus can partly explain why dispersal has not already taken place. Prepared for a Symposium on economic and empirical approaches to private international law, the article also discusses possible changes to the development and practice of that field flowing from these larger forces.

Keywords: urban economics, law and economic geography, locational economics, spatial economics, transaction costs, agency costs, information costs, Biglaw, telework, ICT, law and economics, private international law, COVID-19 pandemic, coronavirus, organizational behavior, innovation

JEL Classification: K00, K20, K40, R12, R30