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Specialization, Firms and Markets: The division of Labour Between and Within Law Firms

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  • Garicano, Luis
  • Hubbard, Thomas

Abstract

What is the role of firms and markets in mediating the division of labour? This Paper uses confidential microdata from the Census of Services to examine law firms' boundaries. We first examine how the specialization of lawyers and firms increases as lawyers' returns to specialization increase. In fields where lawyers increasingly specialize with market size, the relationship between the share of lawyers who work in a field-specialized firm and market size indicates whether firms or markets more efficiently mediate relationships between lawyers in this and other fields. We then examine which pairs of specialists tend to work in the same versus different firms; this provides evidence on the scope of firms that are not field-specialized. We find that whether firms or markets mediate the division of labour varies across fields in a way that corresponds to differences in the value of cross-field referrals, consistent with Garicano and Santos' (2001) proposition that firms facilitate specialization by mediating exchanges of economic opportunities more efficiently than markets.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3699.

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Date of creation: Jan 2003
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Handle: RePEc:cpr:ceprdp:3699

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Keywords: economics or organization; industry structure; law firms; legal services; specialization; theory of the firm;

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References

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  1. George J. Stigler, 1951. "The Division of Labor is Limited by the Extent of the Market," Journal of Political Economy, University of Chicago Press, vol. 59, pages 185.
  2. Ellison, Glenn & Glaeser, Edward L, 1997. "Geographic Concentration in U.S. Manufacturing Industries: A Dartboard Approach," Journal of Political Economy, University of Chicago Press, vol. 105(5), pages 889-927, October.
  3. Hart, Oliver D. & Moore, John, 1990. "Property Rights and the Nature of the Firm," Scholarly Articles 3448675, Harvard University Department of Economics.
  4. George P. Baker & Thomas N. Hubbard, 2002. "Make Versus Buy in Trucking: Asset Ownership, Job Design and Information," NBER Working Papers 8727, National Bureau of Economic Research, Inc.
  5. Gary S. Becker & Kevin M. Murphy, 1994. "The Division of Labor, Coordination Costs, and Knowledge," NBER Chapters, in: Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education (3rd Edition), pages 299-322 National Bureau of Economic Research, Inc.
  6. Hubbard, Thomas N, 2001. "Contractual Form and Market Thickness in Trucking," RAND Journal of Economics, The RAND Corporation, vol. 32(2), pages 369-86, Summer.
  7. Holmstrom, Bengt & Milgrom, Paul, 1994. "The Firm as an Incentive System," American Economic Review, American Economic Association, vol. 84(4), pages 972-91, September.
  8. Rosen, Sherwin, 1983. "Specialization and Human Capital," Journal of Labor Economics, University of Chicago Press, vol. 1(1), pages 43-49, January.
  9. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
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  12. Holmstrom, Bengt, 1999. "The Firm as a Subeconomy," Journal of Law, Economics and Organization, Oxford University Press, vol. 15(1), pages 74-102, April.
  13. Jonathan Levin, 2002. "A Theory of Partnerships," Theory workshop papers 505798000000000002, UCLA Department of Economics.
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Cited by:
  1. Michaels, Guy, 2007. "The Division of Labour, Coordination, and the Demand for Information Processing," CEPR Discussion Papers 6358, C.E.P.R. Discussion Papers.
  2. Duranton, Gilles & Jayet, Hubert, 2011. "Is the division of labour limited by the extent of the market? Evidence from French cities," Journal of Urban Economics, Elsevier, vol. 69(1), pages 56-71, January.

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