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Journal of Law, Economics, and Organization Advance Access published online on May 7, 2008
Journal of Law, Economics, and Organization, doi:10.1093/jleo/ewn003
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© The Author 2008. Published by Oxford University Press on behalf of Yale University. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org

Specialization, Firms, and Markets: The Division of Labor within and between Law Firms

Luis Garicano*

University of Chicago Graduate School of Business and CEPR

Thomas N. Hubbard**

Northwestern University and NBER

* center for Economic Performance, London School of Economics, Houghton Street, London WC2A 2AE, UK, Email: luis.garicano{at}chicagogsb.edu

** Kellogg School of Management, Northwestern University, 615 Leverone Hall, 2001 Sheridan Road, Evanston, IL 60208, U.S.A. Email: t-hubbard{at}kellogg.northwestern.edu

This article uses confidential microdata from the Census of Services to examine law firms' field boundaries. We find that the share of lawyers working in field-specialized firms increases as market size increases and lawyers field specialize, indicating that transaction costs among lawyers, and not just complementarities in clients' demands, affect law firms' field boundaries. Moreover, we find that this pattern is mainly true when looking at fields where lawyers are involved in dispute resolution rather than in structuring transactions. We then analyze which combinations of specialists tend to work in the same firm and which tend not to do so. We relate our results to theories of law firms' boundaries from the organizational economics literature. Our evidence leads us to eliminate risk sharing as an important determinant of firms' field boundaries and narrows the set of possible monitoring or knowledge sharing explanations. (JEL D23, J44, L14, L84)


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