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Lawyers and Investment

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  • Massenot Baptiste

    (Goethe University Frankfurt, Frankfurt am Main, Germany)

Abstract

This paper presents a model of lawyers and investment. Investors use litigation to enforce their financial contracts with entrepreneurs. Litigation is modeled as a contest in which both agents hire lawyers to increase their probability of winning the trial. The issue and the cost of the contest determine how much investors are willing to lend. The model predicts that (i) more lawyers are hired if judicial efficiency is lower or damages are higher; (ii) higher judicial efficiency, higher damages, and tighter restrictions on the supply of lawyers benefit investment. Thus, the number of lawyers can be negatively correlated with economic activity even though lawyers are assumed to be productive.

Suggested Citation

  • Massenot Baptiste, 2014. "Lawyers and Investment," Review of Law & Economics, De Gruyter, vol. 9(3), pages 439-452, January.
    • Handle: RePEc:bpj:rlecon:v:9:y:2014:i:3:p:439-452:n:2
    DOI: 10.1515/rle-2012-0022
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    References listed on IDEAS

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    1. Nicola Gennaioli & Enrico Perotti, 2009. "Standardized enforcement: Access to justice vs contractual innovation," Economics Working Papers 1329, Department of Economics and Business, Universitat Pompeu Fabra, revised Jun 2012.
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    8. Amanda Carmignani & Silvia Giacomelli, 2010. "Too many lawyers? Litigation in Italian civil courts," Temi di discussione (Economic working papers) 745, Bank of Italy, Economic Research and International Relations Area.
    9. Dixit, Avinash K, 1987. "Strategic Behavior in Contests," American Economic Review, American Economic Association, vol. 77(5), pages 891-898, December.
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