The Gazette 1976

GAZETTE

SEPTEMBER 1976

with the "laws delays", but may not be significantly affected by them in periods when £1 today does not have a markedly different value to £1 a year hence. In periods of high inflation, however, delays can wreck havoc with the financial consequences of actions. In such circumstances when time acquires a very high value, less accurate but more rapid methods may yield preferable results to the more precise but slower pro- cedures acceptable in periods of price stability. This effect of inflation may extend to the members of the legal profession itself. The gentle practices of yesteryear when accounts were only rendered after due process of time, need to give way to the crudities of the instant computer if financial calamity is not to overtake the advocate as well as the client! Having thus touched on the efficiency questions which may arise, we may refer to the distributional aspects, and to the interaction of the two. The opera- tion of the legal system appears to throw up one interesting result in that it implies quite large sub- sidies to criminals! Since most discussions of distribu- tional issues seem to proceed on the assumption that any redistribution of income should be to the needy or deserving, this perverse pattern in the case of crime is one feature at least of the legal system which in- terests economists. There may be very good reasons for this result. Many criminals have very low incomes (or none), hence may not be able to pay for the full costs of dealing with their crime(s). If justice before the law is deemed to be a basic public good to which all should be entitled then indeed there is no point in seeking to eliminate such subsidies since they are part of the necessary price of attaining this objective. However the existence of this result does give point to the question of asking whether there are cheaper methods of pro- cessing many of the cases and actions at present dealt with by cumbersome and expensive procedures. High Cost of Motor Insurance As an example I quote the area of motor insurance and the cases which arise as to the liability of drivers involved in accidents. A sample examination of these cases showed that the legal costs of dealing with these disputes were very high for the majority of cases, and that a reduction in premium levels of about 10% would be feasible if a simplified procedure were used for cases of minor damages, leaving the more serious cases to be dealt with through the full application of the liability system as at present. Such a solution would also have clear implications from our efficiency viewpoint since it would alter the proportions of time spent on different categories of work by members of the legal profession. Apart from the short term fall in income for those members of the profession most heavily involved in the existing system, such a change might also be expected to have a generally beneficial impact on the profession. It has been suggested for example that an undue proportion of the best talents are devoted to insurance cases, so that a lessening of the work load in that area would lead to a greater availability of talented people in other branches of legal work. Economics and the Law—Specific Property Rights Having illustrated the nature of the general approach which economists would adopt to the analysis of any profession let me now say something briefly about those unique aspects of the law which possess considerable economic significance. The aspect which I have chosen to illustrate this aspect is that concerning the definition of property rights, because the presence or absence of such rights affects both the level of production and also

At the very outset, in posing the question of what to produce or how much to produce, we immediately note one interesting feature which law has in com- mon with some other industries, namely that there is not a clear definition of the product nor of the quanti- ties required. With ships or shoes, customers place orders for the quantities needed and production can be organised to meet these demands; the same is true with many services-the demand for footballers o'r opera singers will depend on the numbers who wish to see such performances (in part perhaps a function of the particular skills of "star" performers). Not so with law. Demand is not based on a final product or service demanded in its own right; the demand for the services of the legal profession is a derived demand, because people want some other end product for which a legal input is needed. In buying a house the purchaser wants to be clear about his title. If there is a dispute about a contract a process is needed which will determine the rights or duties of the parties and decide the com- pensation payable in the event of damage or loss. If there is a prosecution for a crime, the defendant will want an adequate presentation of his case, and the community will want to see that justice is done and seen to be done. This latter example of crime is perhaps the most important illustration of the care needed in determining the precise nature of the product or out- put supplied by the legal profession and legal system. Is the emphasis to be on the nature of the legal process itself—i.e., that there is a "fair trial" irrespective of the verdict reached, or is the emphasis to be on the end result, i e., "punish the guilty, free the innocent" what- ever the precise process needed to achieve this result? When we have recognised the nature of these questions about the product of the legal system (even if not answering them) we may then take up the question of examining the methods of producing these results. The economist's interest will be to find the least costly method(s) of attaining the desired product and also to find the least costly methods which can actually be applied or adopted. The two are not always identical. Thus the least costly method of dealing with some form of crime might well be to "bribe" the successful crim- inals to retire rather than expend large amounts of police, legal or other resources in unsuccessful attempts to apprehend them or prevent their criminal acts. How- ever such amoral solutions would normally be ruled out! Parallels with other professions Leaving aside such interesting philosophical ques- tions, we may think of the examination of alternative methods of producing the desired products or end re- sults as being bound up in the case of the legal pro- fession with more mundane issues such as the numbers and qualifications of legal practitioners, the methods, if any, by which their skills or knowledge or fitness to practice should be established, the size of firm likely to yield the best results and so forth. Here the parallels with other professions are likely to arise. Just as the medical profession has to strike a balance between the GP and specialist provision of services, so too the legal profession provides a mixture of the two approaches, causing no surprise to the economist who will repeat the two-centuries old formula of Adam Smith that he expects the degree of specialisation and division of labour to be limited by the extent of the market. In examining the relative costs of alternative methods for producing any specified result, one question which has become of increasing importance in recent years is the impact of inflation. The lr man is familiar 142