Home > Incentives, Legal, Privatize > Lawyers: It’s a Regulated Life For Us

Lawyers: It’s a Regulated Life For Us

This week, aspiring lawyers across the country sat for state bar examinations, hoping to be admitted to practice law in that particular state. Having already expressed my thoughts on law school in particular, this seemed like a good week to step back and think about how law school fits into the broader professional regulatory scheme.

When the regulator in question is not a government agency, commission, or department, it can be difficult to detect that regulation even is taking place. When it comes to individuals in daily life, I have suggested the possibility that it doesn’t really matter whether a powerful actor is public or private, but experience shows that public regulators are easier to identify than private ones. The situation with the legal profession is even less obvious where there are multiple regulatory actors.

Two things to look for when attempting to identify a regulatory scheme are externally imposed hurdles and costs. In trying to do something, has someone else prescribed steps you must take to reach your goal? Does someone charge you money as a part of these intermediate steps to reaching your goal? If so, there’s a good chance you’re engaging in regulated activity. A familiar example from the public regulatory context is driving a car. Before operating the car you recently purchased, the state in which you live must license you to do so. State Departments of Transportation or Motor Vehicles must issue you a license, often after a series of competency examinations (e.g., vision, operating competency, and vehicular emissions) and assessment of a variety of fees for the privilege of using your car on government-owned roads.

Before examining the particularities of the legal profession, it is important to recognize that, while other professions self-regulate through various means, no profession is better at getting its professional protectionist measures enshrined in law than the legal profession. In most states, it is a crime to practice law without a license. In effect, this fact gives the other, privately required costs the force of law.

Rather than dwell on the details of each regulatory hurdle, a numbered list follows, identifying the gatekeeping element and a price tag. “Cost,” in this discussion, is about more than price, and includes autonomy and opportunity costs too. The list is arranged chronologically.

  1. Preparation for the Law School Admission Test (LSAT). This is a non-mandatory step, but it is included because it is highly recommended and nearly universally taken. The Law School Admission Council (LSAC), the company that owns and administers the LSAT (the only law school admission test) does offer for free an extremely limited set of free preparatory materials. Most people opt for a third-party preparation course, like those from Kaplan, which range from $899 to $7,999.
  2. The LSAT. The single-day test costs $136 to take.
  3. The law school application process. Applicants must submit their application materials like transcripts, writing samples, and letters of recommendation to the LSAC-run Credential Assembly Service (CAS). At a cost of $124, plus $12 per school, CAS repackages these materials, along with the applicant’s LSAT score, and sends them to law schools. Applicants submit only basic application information directly to law schools, which charge their own application fees of about $75.
  4. Law school. This earlier post focused on law school itself, and the comments have additional information relevant to this post. The fact that many students finance law school through loans complicates the assessment of tuition cost.
  5. Preparation for the bar examination. As with #1, preparation is non-mandatory but highly recommended and widely done. Courses from the most popular third-party service, BARBRI, cost between $3,000 and $4,000.
  6. The bar examination. The length of the exam and cost to take it vary by state. The price usually is between $200 and $1,000, and the exam takes place over two or three days.
  7. The state bar association. Some states also mandate membership in the state bar association and payment of membership dues.
  8. Continuing legal education. Some states require attorneys to take continuing legal education (CLE) courses as a part of maintaining their license to practice. Most CLE credits come with a price tag.

Unmentioned in this list is the American Bar Association (ABA). Membership is optional and not all lawyers join. The ABA is the major source of CLE offerings, though, and is the accrediting organization for law schools. The latter role is important because graduation from an ABA-accredited law school is a prerequisite to sitting for the bar exam in most states.

Also unmentioned is the role of each state’s rules of professional responsibility. State supreme courts are the usual promulgators of these rules, which give the rules a higher legal authority than the ethics rules of other professions. The ostensible purpose of the rules, like those prohibiting non-lawyers to have a stake in a litigation matter, is to protect the legal profession from corruption and unethical incentives. In practice, these rules provide a basis for economic protection of the profession in the form of barriers to entry. The only way to be a lawyer is to overcome the eight regulatory hurdles listed here. To take another path is a criminal offense.


Unlicensed practitioners are criminal losers

When there is a mismatch of information between professional and layperson, licensing can serve an important informational function to potential customers. Here, licensing takes the form of a multi-part regulatory scheme carried out by a variety of public and private entities– LSAC, law schools, state bar associations, state supreme courts, and the ABA– colluding to maintain the regulatory scheme, protect the profession from corruption and entry, and protect their own profitable, powerful roles within their own scheme. The goals of upholding ethical behavior and quality of service are valid. The question is whether the described arrangement is the best way to pursue those goals.

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Categories: Incentives, Legal, Privatize
  1. Mitch
    August 1, 2010 at 9:49 pm

    I was worried that you were going to get through the entire article without using the great economic term, barriers to entry.

    Government-imposed barriers to entry certainly make sense for some occupations like doctors and lawyers.

    However, government-imposed barriers to entry for other occupations like barbers or interior decorators can border on the absurd and only serve to restrain competition and raise prices.

    • AD
      August 5, 2010 at 10:35 am

      Mitch,

      In the post, I acknowledge that there are reasons to regulate the legal profession. The question is whether this sort of arrangement is the best way to achieve those useful ends.

      Additionally, the barriers I’ve identified are not so much “government-imposed” (as in, government-created) as they are government-enforced. Most of them come directly or indirectly from private bodies. By making it a crime to practice law without a license, all of these steps become elements of the crime in a sort of inverted way, and the role of state supreme courts enhances this. My thought is that this sort of complex, multi-entity, public-private scheme a) does not exist in other professions, at least to this extent, and b) is under-examined as a whole system.

      You write that “government-imposed barriers to entry for other occupations…can border on the absurd and only serve to restrain competition and raise prices.” The harder task is drawing the line: which professions are appropriate for government-imposed or government-enforced barriers? Are you a Lochner guy? Surely those regulations do not “only” have the effect of “restrain[ing] competition and rais[ing] prices.” Is it enough, in the legal profession, that the rules and regulations state a more noble purpose, even if they have the same practical effect of restricting entry, extracting regulator rents, and raising prices?

      Thanks for your comment.

  2. AD
    May 20, 2011 at 1:26 pm

    This week, new lawsuits challenge the practically ancient principle that only lawyers may have a financial stake in legal representation. As described in the main post, above, the ostensible reason for this is to protect lawyers and clients from external, improper influence, and the practical reason is that it functions as a professional protectionist measure, restricting entry into the legal field by those who have not paid the tolls and jumped through all of the public, private, and quasi-public hoops necessary to become a lawyer. (For more on that, click here.)

    What is interesting about these suits, brought in three New England states, is that the plaintiff is a law firm. Why would the intended beneficiary of an age-old, bedrock principle want to overturn it?

    The plaintiff-firm is forthcoming about it’s motivation in bringing the suits: money. By effectively loosening ownership restrictions on law firms, a firm opens itself to nonlawyer funding sources that previously were barred by the protectionist policy. Many firms are struggling and have been for a few years. A fresh infusion of financial investment may be just what teetering firms need to stay afloat.

    The real goal here (not necessarily of the firm in these cases, but of other enterprising attorneys and nonlawyer investors) in seeking to break the lock on outside investment in legal causes is third party litigation finance, a topic I covered in great depth here.

    For the full story on this week’s lawsuits, click here.

    For an understanding of where, in my view, this all is heading, please see https://questionspresented.wordpress.com/2010/05/20/executive-research-summary-the-future-of-third-party-litigation-finance.

  1. July 30, 2010 at 7:13 pm
  2. July 30, 2010 at 11:54 pm

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