Regulation of the legal profession and access to law

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1 Regulation of the legal profession and access to law An economic perspective München, September 12 th 2008 Dr. Barbara Baarsma - b.baarsma@seo.nl

2 20 th Congress/almost 40 years of age First International Meeting of RIAD in Rome on 8 May 1969 A leading German lawyer: Legal expenses insurance is a relatively young branch of insurance [ ] for lawyers especially it has the very attractive bloom of youth [.] of its nature it is rich in problems, and places a number of difficulties in the way of those contemplating it. 2

3 Just joking. Q: How do you get a group of lawyers to smile for a photo? A: Just say, "Fees!" 3

4 Research goal What is the effect of the regulation of the legal professions predominantly lawyers on access to law? Economic perspective Focus: civil law and not punitive law or public law monopoly of conducting a case Twelve European countries 4

5 Why regulate? Market failures Information problems between consumers and providers of legal services certification system or private regulation suffices Political reason for compulsory legal representation: Paternalism equality of arms 5

6 The level of regulation differs remarkably Finland 1 England & Wales UK 1 Finland 2 Netherlands Hungary Spain Czech Republic England & Wales UK 2 Switzerland Entry Price Advertisement Belgium Austria France Italy Germany Regulatory index 6

7 Main results (1) Access to law is not safeguarded to a greater degree in those countries subject to more stringent regulations than those where it is less so No relation between regulatory index and functioning and scope of legal aid system No relation between regulatory index and costs of enforcing a business contract Positive relation between regulatory index and number of lawyers per inhabitant In less regulated countries: external competition (England/Wales, Finland, Hungary, Netherlands) In highly regulated countries and high number of lawyers per capita: no external competition (Germany, Italy, Spain) 7

8 Positive relation between number of lawyers and regulatory index No external competition high number of lawyers per capita Switzerland Spain Netherlands Italy Hungary Germany France Finland 2 England & Wales UK 2 Czech Republic Belgium Austria Regulatory Index SEO Number of lawyers per 10,000 inhabitant

9 Main results (2) Legal security delivered through compulsory legal representation in court comes at a cost This regulation decreases accessibility of the legal system: Compulsory representation in court by lawyers only High barriers to access introduced by the Bars Consumer is locked-in Indirect effects of the procedural monopoly 9

10 Extent of overcharge: up to 6 times Case 1: a dispute between an employer and an employee Average index number Insourcing: cases handled by internal practitioners Outsourcing is up to Outsourcing: cases handled by a network lawyer times as expensive 269 cases handled by an external lawyer 489 Case 2: a personal injury claim Average index number Insourcing: cases handled by internal practitioners 100 Outsourcing is up to 6 Outsourcing: cases handled by a network lawyer 274 times as expensive cases handled by an external lawyer 606 Case 3: a consumer dispute Average index number Insourcing: cases handled by internal practitioners 100 Outsourcing: cases handled by a network lawyer Outsourcing is up to cases handled by an external lawyer times as expensive 414 Case 4: a dispute between two SME-companies about the supply of Average index number goods and services. Insourcing: cases handled by internal practitioners 100 Outsourcing: cases handled by a network lawyer 316 cases handled by an external lawyer 526 Outsourcing is up to 5.2 times as expensive 10

11 Recommendations (1) National regulators should analyse the specific public interest in their national markets of legal services Governments should list various regulatory options next to the current regulatory scheme A cost benefit analysis be performed of the current level of regulation compared to other levels of regulation that also guarantee the public interest at play 11

12 Recommendations (2) Opening up the monopoly to others than just lawyers is beneficial to the consumer is at least two ways: The individual seeking access to justice has more choice and is better able to find the level of advice he needs for his particular problem. Consequently, the average price will lower as these individuals only pay what they need and not more. Due to these price decreases insured parties pay a lower premium for their legal expenses policy. 12

13 Thank you Barbara Baarsma SEO Economic Research Roetersstraat WB Amsterdam The Netherlands

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