Economic limits of (de)regulation in legal services market

Abstract

Deregulation of professional services is universally praised for assisting lower prices, higher quality, and faster innovation pace benefiting the public. However, major authorities in economic science (from A. Smith to R. Coase) agreed that efficient regulation is needed to reduce frictions and promote trade. Particularly legal services demonstrate numerous forms of inefficiencies, requiring a thorough microeconomic evaluation before optimising the regulation. The highly polarised market is split in two segments with regulation mostly needed at its bottom. Our longitudinal study of Slovenian legal offices population mainly rejects the private capture hypothesis and exposes political risks of regulation, which might lead to the “tragedy of commons”. Imposed lawyer’s tariff freeze since 2003 paradoxically hurts the pillars of a network warranting physical and economic accessibility of legal services for most vulnerable groups. We estimate that the lawyer’s tariff in Slovenia is undervalued almost by half, but only a slow increase can be expected due to political costs and fiscal effects. Dismal perspectives for lawyer’s profession divert capable new entrants to start the career, causing long-term gap in labour supply. Thus, we concentrated on modelling the minimum requirements for a financially viable network coverage in order to support positive externalities.