To Reduce Lawyers’ Drag on Growth, How about a Law PhD?

A crisis is a terrible thing to waste, so the saying goes. So is a mind – a keen scholarly legal mind. Fewer students seem to be interested in entering law school as can be seen by the 50% decline in applications. But the crisis in legal education may have a silver lining: as most law schools are cutting their student enrollments, Chicago, Vanderbilt, and Yale law schools are attracting students to new legal doctoral programs. Despite what one might think, PhD lawyers could be a good thing for the economy: they will be trained to produce research that could help eliminate costly inefficiencies caused by public policies—ironically, especially those that increase the demand for lawyers. Indeed, if economics research is correct that an economy’s growth slows as more lawyers comprise its workforce, then the payoff from such research could be substantial.

Last year, the University of Chicago established the Coase-Sandor Institute for Law and Economics and is currently developing a joint J.D./Ph.D. in law and economics. Vanderbilt Law School will welcome students to its new Ph.D. program in law and economics in 2014. And this fall, Yale Law School will welcome students to its new Ph.D. program in law. Other major law schools are likely to follow, offering similar doctoral programs in the coming years.

Law is at the core of public policy and indeed is the bedrock of democratic government; thus, doctoral programs in law will require graduates to apply analytical tools that produce original contributions to knowledge about the causes and effects of a vast array of public policies. As a result, these newly minted PhDs will develop powerful, empirically testable findings that could significantly benefit society by maximizing the benefits and reducing the costs of government intervention in our economics lives.

Since the late 1950s and early 1960s, when faculty at Chicago and Harvard first used quantitative methods to analyze whether economic regulations of various industries were having their intended effects of controlling monopoly pricing, scholars have assessed countless public policies. However, we have little knowledge of the quantitative—and even qualitative—effects of many important policies, especially those where lawyers may benefit at the expense of society at large. Those laws and regulations would therefore be ripe for analysis by law doctoral students due to their in-depth knowledge of the legal system and the various roles that lawyers play in it.

For example, lawyers are central to the resolution of intellectual property disputes. Indeed, lawyers are routinely called upon to write patent applications because applicant companies know that the validity of most patents will eventually be determined in a federal court. While lawyers benefit from a patent system that generates demand for their services, there is little evidence on whether the lawyer-rich patent system provides benefits that outweigh its costs.

There’s also America’s expensive liability system. Lawyers are generally paid on a contingency-fee basis, and because the cost of defending a suit is high, defendants often pay the plaintiffs (and their lawyers) to settle before trial. The cost of the U.S. tort system has been estimated by Towers Perrin to be at least two percent of GDP, but there is little evidence on whether the benefits of this system exceed its cost. Thus policymakers have little guidance on how the system should be reformed to reduce its costs without compromising any incentives it may provide for individuals and firms to behave in a socially desirable manner.

Another example: financial regulation reform in the wake of the Great Recession. Highly-paid lawyers representing various interests have engaged intensely with federal regulatory agencies to shape the implementation of the Dodd-Frank Act. Unfortunately, little scholarly knowledge is available to guide how, if at all, financial regulation should be reformed and how best to prevent a repeat of the events that led to the financial crisis. As a result, the merits of the Act are being strongly questioned and certain policymakers and industry executives are calling for its repeal even before it is fully implemented.

Finally, reform of health care has emerged as one of the most important policy issues of our time. And while research has yet to find a “magic bullet” to lower the costs of the health-care delivery system without significantly reducing the quality of care, lawyers are fully engaged in opposing any measures that would limit their fees or impose caps on damages in medical malpractice cases.

Graduates and faculty of the new doctoral programs in law have an opportunity to fill many gaps in our understanding of the effects of policies that are at the center of their expertise and to explain how the symbiotic relationship between private-sector lawyers and policymakers, who often come from legal backgrounds, have adversely affected policy outcomes.

If lawyers are truly a drag on the nation’s growth in the course of influencing and benefiting from inefficient public policies, then doctoral programs in law have come at just the right time.