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Up-or-Out Rules in the Market for Lawyers

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  • O'Flaherty, Brendan
  • Siow, Aloysius

Abstract

The authors examine how up-or-out rules operate as a screening device in the market for lawyers. Using data on large New York law firms, they show that firm growth is a slow and uncertain process because performance as an associate is not an especially informative signal about whether a lawyer will make a good partner and because the costs of mistaken promotion are relatively high. A newly hired associate is unlikely to be a suitable partner and the screening process is relatively imprecise. Firm growth therefore contributes between 5-7 percent of the present value of profits of a law firm. Copyright 1995 by University of Chicago Press.

Suggested Citation

  • O'Flaherty, Brendan & Siow, Aloysius, 1995. "Up-or-Out Rules in the Market for Lawyers," Journal of Labor Economics, University of Chicago Press, vol. 13(4), pages 709-735, October.
    • Handle: RePEc:ucp:jlabec:v:13:y:1995:i:4:p:709-35
    DOI: 10.1086/298390
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    1. Carr, Jack & Mathewson, Frank, 1990. "The Economics of Law Firms: A Study in the Legal Organization of the Firm," Journal of Law and Economics, University of Chicago Press, vol. 33(2), pages 307-330, October.
    2. Lorne Carmichael, 1983. "Firm-Specific Human Capital and Promotion Ladders," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 251-258, Spring.
    3. Abowd, John M & Card, David, 1989. "On the Covariance Structure of Earnings and Hours Changes," Econometrica, Econometric Society, vol. 57(2), pages 411-445, March.
    4. W. Kip Viscusi, 1980. "A Theory of Job Shopping: A Bayesian Perspective," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 94(3), pages 609-614.
    5. Dominique Demougin & Aloysius Siow, 1992. "Managerial Husbandry and the Dynamics of Ongoing Firms," Cahiers de recherche CREFE / CREFE Working Papers 2, CREFE, Université du Québec à Montréal.
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