The Gazette 1976

GAZETTE

SEPTEMBER 1976

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

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.

periods of high inflation, however, delays can wreck

havoc with the financial consequences of actions.

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