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Specialization, Firms, and Markets: The Division of Labor Within and Between Law Firms

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  • Luis Garicano
  • Thomas N. Hubbard

Abstract

What is the role of firms and markets in mediating the division of labor? This paper uses confidential microdata from the Census of Services to examine law firms' boundaries. We find that firms' field scope narrows as market size increases and individuals specialize, indicating that firms' boundaries reflect organizational trade-offs. Moreover, we find that whether the division of labor is mediated by firms differs systematically according to whether lawyers in a particular field are mainly involved in structuring transactions or in dispute resolution. Our evidence is consistent with hypotheses in which firms' boundaries reflect variation in the value of knowledge-sharing or in the costs of monitoring, but not in risk-sharing. Our findings show how the incentive trade-offs associated with exploiting increasing returns from specialization lead the structure of the industry to be fragmented, but highly-skewed.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9719.

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Date of creation: May 2003
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Publication status: published as Garicano, Luis and Thomas N. Hubbard. "Specialization, Firms, and Markets: The Division of Labor within and between Law Firms." Journal of Law, Economics, and Organization 25, 2 (2009): 339-371.
Handle: RePEc:nbr:nberwo:9719

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Cited by:
  1. Garicano, Luis & Hubbard, Thomas, 2007. "The Return to Knowledge Hierarchies," CEPR Discussion Papers 6077, C.E.P.R. Discussion Papers.
  2. Ran Abramitzky, 2008. "The Limits of Equality: Insights from the Israeli Kibbutz," Discussion Papers 07-048, Stanford Institute for Economic Policy Research.
  3. Stuart S. Rosenthal & William C. Strange, 2010. "Small Establishments/Big Effects: Agglomeration, Industrial Organization and Entrepreneurship," NBER Chapters, in: Agglomeration Economics, pages 277-302 National Bureau of Economic Research, Inc.
  4. Casey Ichniowski & Kathryn Shaw, 2004. "Using "Insider Econometrics" to Study Productivity," American Economic Review, American Economic Association, vol. 94(2), pages 217-223, May.
  5. Parama Chaudhury, 2010. "Multi-tasking and the Returns to Experience," Economics Series Working Papers 518, University of Oxford, Department of Economics.
  6. Luis Garicano & Thomas N. Hubbard, 2004. "Hierarchies, Specialization, and the Utilization of Knowledge: Theory and Evidence from the Legal Services Industry," NBER Working Papers 10432, National Bureau of Economic Research, Inc.
  7. Frank Limehouse & Robert McCormick, 2011. "Impacts of Central Business District Location: A Hedonic Analysis of Legal Service Establishments," Working Papers 11-21, Center for Economic Studies, U.S. Census Bureau.
  8. Alberto Battistini, 2008. "Micro-Founded Institutions and Macro-Founded Individuals: The Dual Nature of Profit," Department of Economics University of Siena 550, Department of Economics, University of Siena.
  9. Garicano, Luis & Hubbard, Thomas N., 2005. "Hierarchical sorting and learning costs: Theory and evidence from the law," Journal of Economic Behavior & Organization, Elsevier, vol. 58(2), pages 349-369, October.
  10. Casey Ichniowski & Kathryn L. Shaw, 2009. "Insider Econometrics: Empirical Studies of How Management Matters," NBER Working Papers 15618, National Bureau of Economic Research, Inc.

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