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

Jan Bouckaert and Johan Stennek ()
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Johan Stennek: Department of Economics, School of Business, Economics and Law, Göteborg University, Postal: P.O. Box 640, SE 40530 GÖTEBORG, Sweden, https://www.gu.se/en/school-business-economics-law/economics

No 820, Working Papers in Economics from University of Gothenburg, Department of Economics

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.

Keywords: law firms; professional services; dual representation; representational conflicts of interest; ethical standards; Chinese walls; recusals; negative network externalities; competition; self-regulation (search for similar items in EconPapers)
JEL-codes: K40 L13 L22 L44 L84 (search for similar items in EconPapers)
Pages: 57 pages
Date: 2022-04, Revised 2022-10
New Economics Papers: this item is included in nep-bec, nep-com, nep-ind, nep-law, nep-mic and nep-reg
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Working Paper: Conflicts of interest, ethical standards, and competition in legal services (2022)
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