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Advocatus, et non Latro? Testing the Supplier-Induced Demand Hypothesis for the Italian Courts of Justice

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  • Paolo Buonanno
  • Matteo M. Galizzi

Abstract

We explore the causality relationship between litigation rates and the number of lawyers, drawing on an original panel dataset for the 169 Italian first instance courts of justice between 2000 and 2007. In this time bracket, both the number of lawyers and the civil litigation rate sharply increased, and a mandatory minimum fee was in place for lawyers services. We first document that the number of lawyers is positively correlated with different measures of litigation rate. Then, using an instrumental variables strategy, we find that a 10 percent increase of lawyers over population is associated with an increase between 1.6 and 6 percent in civil litigation rates. Our empirical analysis supports the supplier-induced demand (SID) hypothesis for the Italian lawyers: following the sharp increase in the number of lawyers, and in the impossibility of competing in price because of the minimum fee regulation, some lawyers could have opportunistically used their in- formational advantage to induce their clients to bring lawsuits into court more often than it would be optimal if they were acting in the exclusive interest of the clients.

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Bibliographic Info

Paper provided by Collegio Carlo Alberto in its series Carlo Alberto Notebooks with number 250.

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Length: 34 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:cca:wpaper:250

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Related research

Keywords: laywers; litigation rates; credence goods;

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References

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  1. Tom Ginsburg & Glenn Hoetker, 2006. "The Unreluctant Litigant? An Empirical Analysis of Japan’s Turn to Litigation," The Journal of Legal Studies, University of Chicago Press, vol. 35(1), pages 31-59, 01.
  2. David Madden & Anne Nolan & Brian Nolan, 2004. "GP Reimbursement and Visiting Behaviour in Ireland," Working Papers 200426, School Of Economics, University College Dublin.
  3. John Bound & Harry J. Holzer, 1996. "Demand Shifts, Population Adjustments, and Labor Market Outcomes during the 1980s," NBER Working Papers 5685, National Bureau of Economic Research, Inc.
  4. Brunello, Giorgio & Cappellari, Lorenzo, 2005. "The Labour Market Effects of Alma Mater: Evidence from Italy," IZA Discussion Papers 1562, Institute for the Study of Labor (IZA).
  5. Hanssen, F Andrew, 1999. "The Effect of Judicial Institutions on Uncertainty and the Rate of Litigation: The Election versus Appointment of State Judges," The Journal of Legal Studies, University of Chicago Press, vol. 28(1), pages 205-32, January.
  6. Bart COCKX & Carine BRASSEUR, 2001. "The Demand for Physician Services. Evidence from a Natural Experiment," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2001027, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  7. Posner, Richard A, 1997. "Explaining the Variance in the Number of Tort Suits across U.S. States and between the United States and England," The Journal of Legal Studies, University of Chicago Press, vol. 26(2), pages 477-89, June.
  8. Paolo Buonanno & Daniel Montolio & Paolo Vanin, 2006. "Does Social Capital Reduce Crime?," Working Papers 0605, University of Bergamo, Department of Economics.
  9. Grytten, Jostein & Holst, Dorthe & Laake, Peter, 1990. "Supplier inducement : Its effect on dental services in Norway," Journal of Health Economics, Elsevier, vol. 9(4), pages 483-491, December.
  10. Darby, Michael R & Karni, Edi, 1973. "Free Competition and the Optimal Amount of Fraud," Journal of Law and Economics, University of Chicago Press, vol. 16(1), pages 67-88, April.
  11. Grytten, Jostein & Carlsen, Fredrik & Sorensen, Rune, 1995. "Supplier inducement in a public health care system," Journal of Health Economics, Elsevier, vol. 14(2), pages 207-229, June.
  12. James H. Stock & Motohiro Yogo, 2002. "Testing for Weak Instruments in Linear IV Regression," NBER Technical Working Papers 0284, National Bureau of Economic Research, Inc.
  13. Gerhard Clemenz & Klaus Gugler, 2000. "Macroeconomic Development and Civil Litigation," European Journal of Law and Economics, Springer, vol. 9(3), pages 215-230, May.
  14. Victor R. Fuchs, 1978. "The Supply of Surgeons and the Demand for Operations," NBER Working Papers 0236, National Bureau of Economic Research, Inc.
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