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 |  Subject: The Law as the Free Market's Rogue: Hostage to the Prisoner's Dilemma  Sat May 10, 2008 1:41 am | |
| KATE: For someone who has nothing nice to say about lawyers, you certainly have enough of them around.
GARFINKLE: You have to. They're like nuclear warheads. They have theirs, so you need yours, but . . . they're only good in their silos.
-- "Other People's Money," by Jerry Sterner
Looking for a new reason to blame lawyers for it all? Economists are at your service.
One recent study documented a strong negative link between the proportion of law graduates in a country's work force and its rate of economic growth. Another estimates that litigation between companies reduces their combined stock value, on average, by 1 percent -- real money in a world of multibillion-dollar corporations.
But as many a learned counsel would be happy to point out, there is a seeming contradiction in economists' distaste for lawyers. Modern economics is built on the rock of competition and free choice. If lawyers, who are certainly competitive, can find willing customers for their services, where do economists get off second-guessing the market?
Not to worry, lawyer-bashers. Two seasoned practitioners of the dismal science, Profs. Orley Ashenfelter of Princeton and David Bloom of Columbia, have just come up with an explanation. Competitive markets do sometimes fail to produce efficient outcomes, they note. And they believe that the market for legal services fails in a particularly perverse and fascinating way, known in the jargon of the mathematical theory of games as "the prisoner's dilemma."
Consider a pair of criminal suspects, each held incommunicado. There is no direct evidence of their guilt, and so they can be convicted only if one confesses. Hence, the prosecutor offers each a deal. If only one turns state's evidence, he goes free while the other receives a stiff sentence. If both confess, they both go to jail, although the sentences are less severe.
Were the two prisoners able to coordinate their strategies, neither would confess and neither would go to jail. But since neither can be sure what the other will do, both have incentive to act in a mutually destructive way. A confession, after all, means either freedom or a light sentence. Hanging tough while the accomplice confesses brings the worst possible outcome, what game theorists call "the sucker's payoff."
The prisoner's dilemma is old news to military strategists. It figures in every arms race and may go a long way toward explaining why cold wars become hot ones. But what does it have to do with lawyers? Noncooperation Dominates
Take Smith and Jones, who disagree about the ownership of $100,000 worth of property. They can settle the dispute very cheaply by splitting the difference or by asking a neutral party to arbitrate. Alternatively, either can hire a lawyer for $10,000 to represent him in a formal proceeding.
Jones believes that by hiring counsel while Smith does not, he can improve his chances of winning by at least enough to make his $10,000 expenditure worthwhile. Likewise for Smith. On the other hand, if both hire lawyers the value of legal representation is neutralized, and the total size of the pie to be split between the two parties is reduced to $80,000.
So one might expect that Smith and Jones would cooperate -- that is, that the incentives offered each of them by the free market would lead them to minimize the collective cost of settling their dispute. What makes the prisoner's dilemma so compelling and so frustrating is that noncooperative behavior dominates cooperative behavior in spite of the certain knowledge that the process will burn $20,000 in legal fees. 'Agents of the Devil'
And it is here that Professors Ashenfelter and Bloom strike their blow against the bar, offering evidence that noncooperation pays -- that the likely payoff in hiring a lawyer does exceed the cost.
In a yet-to-be-published paper entitled "Lawyers as Agents of the Devil," the two economists looked first at public-employee wage disputes from 1981 to 1984 in New Jersey, where arbitrators, rather than splitting the difference, were required to choose one of the disputants' final offers. By the estimates of Professors Ashenfelter and Bloom, expert representation sufficiently increased the probability of winning to make it worthwhile to hire a lawyer.
They also examined the outcomes of 755 union grievance proceedings in Pennsylvania in which arbitrators decided whether employers had the right to discharge workers. Here, they assumed that the loss of a coveted union job cut an average worker's future earning power by 10 percent, and calculated that the improved chances of keeping that job by retaining a lawyer was worth at the very least $5,000 -- far more than the cost of representation. Similar results were found in a study by the Rand Corporation Institute for Civil Justice involving debt-collection, personal-injury and breach-of-contract cases resolved through arbitration in Pittsburgh. But Where Does Justice Lie?
It is possible, Professors Ashenfelter and Bloom concede, that cases in which both sides are represented by lawyers are most likely to produce equitable results. If that is true, then there is no genuine waste -- no failure of the legal market to produce an efficient result -- assuming that justice has a value exceeding the extra cost of hiring lawyers to pursue it.
But a lawyer's job in the adversarial system is to win, not to produce justice, notes Prof. Gordon Tullock, lawyer by training and economist by sensibility at the University of Arizona. Thus it is also possible that the presence of lawyers reduces the probability that a judge, a jury or an arbitrator will arrive at the just solution.
Indeed, Professor Tullock believes that the continental European legal system, in which the court itself takes the lead in ferreting out and interpreting evidence, is both cheaper and more just than the American system. Gladiators and Peacemakers
In any event, economists may not have the last word on the games that lawyers and their clients are compelled to play. Douglas Baird, director of the law-and-economics program at the University of Chicago Law School, contends that the "traditional prisoner's dilemma ends badly only because the prisoners aren't able to communicate or to hold the other to an agreement." And, he asserts, those conditions do not typically apply to legal disputes.
Profs. Ronald Gilson of Stanford Law School and Robert Mnookin of Harvard Law School press the point further in an article soon to be published in the Columbia Law Review. They argue that if parties to a dispute believed that they stood to gain collectively from cooperation, and if each was in a position to neutralize the advantage of trickery by the other, would not cooperation become the dominant strategy?
By the same token, they believe that lawyers themselves often have strong incentive to signal a willingness to cooperate. Since many clients prefer to hire lawyers who are disinclined to no-holds-barred warfare (providing the other side does the same), it would pay many lawyers to establish reputations as peacemakers. And indeed they note that the divorce bar is clearly divided between "gladiators" out for blood and "peacemakers" who seek amicable resolution.
But if the free market is inclined to reward lawyers who use low-cost strategies, why has there been an escalation in civil litigation in recent decades? One reason, Professor Mnookin argues, is that as the legal profession has grown, it has become harder for lawyers to establish a clear reputation as peacemakers among other lawyers and potential clients.
Another is that commercial law has become more complex, offering more ways for an advocate to hide his intentions and fail to honor the spirit of an interim agreement. This "noise" in the legal system is often so loud, Professor Mnookin suggests, that it is easy to misinterpret the other side's strategy. And a very noisy case may lead to the classic prisoner's dilemma, in which neither party can risk a cooperative stance lest he be tagged as the sucker. 'Cooperative Boutiques'
While the two economists see lawyers as the problem, Professor Mnookin views them as the potential solution. He wants to make it easier for lawyers to establish and sustain professional reputations as reliable peacemakers -- for example, by letting them more simply withdraw from cases in which clients pressure them to act uncooperatively. And he imagines the establishment of "cooperative boutiques," laws firms that would handle only cases in which all parties signaled their interest in cooperation.
The big question here is whether lawyers as a whole have the will or the way to reduce the demand for their services. And Professor Tullock is plainly skeptical. How, he wonders, could the bar cotton to reforms that would cause "many lawyers to become vacuum cleaner salesmen?"
LNK
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| | Subject: Re: The Law as the Free Market's Rogue: Hostage to the Prisoner's Dilemma Sat May 10, 2008 2:04 am | |
| It's a shitty statist racket!
Lawyers are the transmission belt for oppressive edicts... they are responsible for spreading the poison through society...
Who the fuck needs them anyway! Not the free market, that's for sure!
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“The state calls its own violence law, but that of the individual, crime.”-- Max Stirner
"Remember: Evil exists because good men don't kill the government officials committing it." -- Kurt Hofmann |
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