Specialization, Firms, and Markets: The Division of Labor Within and Between Law Firms

54 Pages Posted: 10 Jun 2003  

Luis Garicano

University of Chicago - Booth School of Business - Economics; Centre for Economic Policy Research (CEPR)

Thomas N. Hubbard

Northwestern University - Department of Management & Strategy; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: May 2003

Abstract

What is the role of firms and markets in mediating the division of labor? This paper uses confidential microdata from the Census of Services to examine law firms' boundaries. We find that firms' field scope narrows as market size increases and individuals specialize, indicating that firms' boundaries reflect organizational trade-offs. Moreover, we find that whether the division of labor is mediated by firms differs systematically according to whether lawyers in a particular field are mainly involved in structuring transactions or in dispute resolution. Our evidence is consistent with hypotheses in which firms' boundaries reflect variation in the value of knowledge-sharing or in the costs of monitoring, but not in risk-sharing. Our findings show how the incentive trade-offs associated with exploiting increasing returns from specialization lead the structure of the industry to be fragmented, but highly-skewed.

Keywords: industry structure, services, make or buy

JEL Classification: L11, L14, L22, L84

Suggested Citation

Garicano, Luis and Hubbard, Thomas N., Specialization, Firms, and Markets: The Division of Labor Within and Between Law Firms (May 2003). U Chicago Law & Economics, Olin Working Paper No. 213. Available at SSRN: https://ssrn.com/abstract=404280 or http://dx.doi.org/10.2139/ssrn.404280

Luis Garicano

University of Chicago - Booth School of Business - Economics ( email )

Graduate School of Business
1101 East 58th Street
Chicago, IL 60637
United States
773-834-2862 (Phone)
773-702-0458 (Fax)

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Thomas N. Hubbard (Contact Author)

Northwestern University - Department of Management & Strategy ( email )

Kellogg School of Management
2001 Sheridan Road
Evanston, IL 60208
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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