Conflicts of Interest, Ethical Standards, and Competition in Legal Services
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.
University of Gothenburg
JEL: K40, L13, L22, L44, L84
representational conflicts of interest
negative network externalities
Working papers no 820