SLAW Article: Getting Useful Information to Consumers of Legal Services

writes for SLAW….

Why do we regulate lawyers and paralegals? Why not just let the “market” do its’ thing? The standard answer is two-fold and relates to the need for legal expertise.

Credence goods and professional regulation

The first part of the answer focuses on consumers. The legal system is complex. Addressing legal problems requires expert assistance. People are not well able to judge for themselves whether their lawyer or paralegal is actually competent. Of course, there is much that can be assessed by clients such as being a good communicator and being responsive. But clients can’t be confident whether the advice received is good and whether the results obtained are appropriate in the circumstances.

Economists talk about “credence goods”. These are goods (or services) where the consumers can’t really assess whether, and to what extent, they need the goods on offer. Ironically, the producer of a credence good assists the consumer in understanding what is needed from the producer– and the consumer can’t fully assess the quality of what is provided. Economists talk about information asymmetry between consumers and producers where credence goods are concerned. The bottom line is that markets don’t work effectively where consumers can’t judge the quality of services provided nor the true need for those services.

Licensing addresses this market failure by providing a signal to consumers that licensed professionals are sufficiently competent. Post-licensing regulation seeks to ensure that licensed professionals conduct themselves properly and don’t take advantage of information asymmetry by taking advantage of their clients.

The second part of the answer focuses on the legal system itself. The legal system depends on competent and ethical legal representation. Whether in disputes resolved by the adversarial system or in transactional matters, our legal system would be rendered ineffective (or worse) if clients who need expert assistance are provided inexpert or unethical assistance. It is commonly said that having incompetent representation is worse than having no representation at all. And having no representation can be highly problematic as the plight of the self-represented litigants shows.

None of this is to say that professional regulation is a panacea. One of the consequences of regulation is that prices tend to increase because competition is restricted by barriers to entry. And no regulation is perfect. There are many frailties and imperfections in professional regulation. But there is good reason to regulate lawyers and paralegals.

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