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Conflicts of Interest, Ethical Standards, and Competition in Legal Services

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  • Bouckaert, Jan

    (University of Antwerp)

  • Stennek, Johan

    (Department of Economics, School of Business, Economics and Law, Göteborg University)

Abstract

We study how the legal profession manages representational conflicts of interest. Such conflicts arise when the same law firm represents clients with adverse interests. They may compromise the legal process, ultimately jeopardizing social welfare. We argue that current ethical standards, emphasizing disqualification over Chinese walls, may actually worsen the clients’ situation. Instead, the clients’ interests are today mainly protected by law firms being small. Despite low market concentration, law firms enjoy high earnings as representational conflicts create negative network externalities at the firm level. These profits are not eroded even in the long run as entry occurs through firm splitups.

Suggested Citation

  • Bouckaert, Jan & Stennek, Johan, 2022. "Conflicts of Interest, Ethical Standards, and Competition in Legal Services," Working Papers in Economics 820, University of Gothenburg, Department of Economics, revised Oct 2022.
    • Handle: RePEc:hhs:gunwpe:0820
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    law firms; professional services; dual representation; representational conflicts of interest; ethical standards; Chinese walls; recusals; negative network externalities; competition; self-regulation;
    All these keywords.

    JEL classification:

    • K40 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L44 - Industrial Organization - - Antitrust Issues and Policies - - - Antitrust Policy and Public Enterprise, Nonprofit Institutions, and Professional Organizations
    • L84 - Industrial Organization - - Industry Studies: Services - - - Personal, Professional, and Business Services

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