Lawyer Licensing Laws Lead to Higher Prices, Less Consumer Choice and Access to Legal Services

In a previous post I noted the publication of a new book that I contributed to that discusses problems with the U.S. legal system and how to resolve them. The Pursuit of Justice: Law and Economics of Legal Institutions is a thoroughgoing analysis of the bureaucratization and politicization of the U.S. legal system and how the law works in practice rather than in theory. The book looks specifically at how decision makers in the law—judges, lawyers, juries, police, forensic experts, and more—respond to economic incentive structures. Here is a synopsis of the book from the Independent Institute, which published the book with Palgrave Macmillan.

My chapter, “Licensing Lawyers: Failure in the Provision of Legal Services,” analyzes how occupational licensing and other regulatory burdens increase the prices of legal services, reduce competition and the quality of services provided, decrease consumer choice and access to legal services, and otherwise distort the market for legal services. Below is an excerpt from this chapter.

While occupational licensing regulations and unauthorized practice of law statutes are billed as a means of protecting the public from negligent, unqualified, or otherwise substandard practitioners, in reality, they are simply a means of using government regulation to serve narrow economic interests. Numerous studies have revealed little, if any, improvement in service quality from compulsory licensing. Oftentimes, licensing laws actually reduce service quality, as consumers make decisions based on a false sense of security regarding a licensee’s state- or bar-association-sanctioned qualifications, and the artificially high prices caused by licensing causes more people to perform their own legal services that they may not be qualified to undertake, or forego legal action altogether when it is called for.

Some have argued that because the law is so complex, and the gap between the consumer’s and attorney’s knowledge of the law is so great, we must have other lawyers determine and enforce proper quality standards. Besides being incredibly paternalistic, this notion ignores the fact that people are constantly purchasing products and services of which they initially have no specialized knowledge and finding ways to inform themselves. So long as there is demand for such information, it will be provided in a free market.

Unauthorized practice of law prohibitions, regulations on business practices such as advertising restrictions, the lack of reciprocity agreements among jurisdictions, and the virtual monopoly control of legal education by the ABA are designed not to protect consumers, but rather to protect existing business interests from competition. This suppression of competition damages the business climate, stifles innovation, and allows licensed lawyers to charge higher fees for services than they would be able to in a truly free market.

Regulatory barriers to entry deny many the freedom and opportunity to earn an honest living in the occupation of their choosing. It is not only would-be workers and entrepreneurs who are hurt by licensing laws, however. The rigid, one-size-fits-all standards imposed by the government (and supported by state bar associations) also harm consumers by reducing consumer choice. Individuals have different wants and needs, and even different levels of risk tolerance. They are better able to determine their own needs and protect their own interests than politicians or bureaucrats far removed in the halls of the state capitol or city hall. In the event of someone being taken advantage of or otherwise wronged by a dishonest or incompetent lawyer, the courts are available to punish wrongdoers and make the victims whole.

In light of the enormous economic losses to society inflicted by occupational licensing regulations, and the destructive effects these laws have on consumers and aspiring lawyers—not to mention individual liberty in general—UPL statutes and other mandatory licensing regulations should be abolished. Private-sector alternatives such as voluntary certification and reputational information would allow consumers to obtain valuable information about attorneys and legal services while leaving them free to choose to do business with those who best meet their needs. In a true free market for legal services, one could expect greater specialization, more low-cost legal clinics, and more innovative forms of alternative dispute resolution, such as expanded use of arbitration and mediation services. The powerful free-market incentive to maintain a solid business reputation and the existence of the legal system to address malpractice or other wrongdoing are all that is needed to protect consumers.

Let me leave you with a favorite quote of mine on the subject of occupational licensing from James Madison:

“That is not a just government, nor is property secure under it, where arbitrary restrictions, exemptions, and monopolies deny to part of its citizens that free use of their faculties, and free choice of their occupations.”

— James Madison, “Property,” National Gazette, March 29, 1792