Discussion Paper Details

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

Author(s): Luis Garicano and Thomas Hubbard

Publication Date: January 2003

Keyword(s): economics or organization, industry structure, law firms, legal services, specialization and theory of the firm

Programme Area(s): Industrial Organization

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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Bibliographic Reference

Garicano, L and Hubbard, T. 2003. 'Specialization, Firms and Markets: The division of Labour Between and Within Law Firms'. London, Centre for Economic Policy Research.