Thursday, December 08, 2011

Lawyers and Economic Growth

Certain aspects of the legal profession get a lot of stick, some would say rightly so. While reading Robert Frank's Luxury Fever recently I came across this paper which suggests that this prejudice has an empirical basis, more lawyers reduce growth.

The Allocation of Talent: Implications for Growth

Kevin M. Murphy, Andrei Shleifer and Robert W. Vishny


A country's most talented people typically organize production by others, so they can spread their ability advantage over a larger scale. When they start firms, they innovate and foster growth, but when they become rent seekers, they only redistribute wealth and reduce growth. Occupational choice depends on returns to ability and to scale in each sector, on market size, and on compensation contracts. In most countries, rent seeking rewards talent more than entrepreneurship does, leading to stagnation. Our evidence shows that countries with a higher proportion of engineering college majors grow faster; whereas countries with a higher proportion of law concentrators grow more slowly.

Quarterly Journal of Economics, 1991, Volume106, Issue2, Pp. 503-530


Kevin Denny said...

Interesting idea but the evidence presented is very weak. The number of law students as a proxy for rent seekers and engineering students as a proxy for entrepreneurs?
And why are these regressions causal?

Liam Delaney said...

Also Mark, large literature on the role of good legal institutions on promoting growth. Would be worth setting these against each other.