Rational Cutbacks in Legal Education
John has displayed the commendable skills of a market economist in noting what happens when there is a decline in demand with supply constant. That demand curve shifts closer to the origin, so that it crosses the supply curve at a point where both the price paid and the quantity supplied are decreased. Note that this movement need not be the only one that takes place. It is also possible that the supply curve will move to the left so that it is costlier to supply a given level of services, such that quantity goes down and price goes up.
In these markets, if the quantity supplied goes down, someone has to exit the market, and that will in general be the marginal producers whose costs are high and, more importantly, whose services have a lower perceived benefit. There is no preordained pro rata adjustment. Separate parties make separate judgments, and so long as their incentives are about right, the social outcome will be right as well. It does not follow, moreover, that the elite schools are untroubled. It could well be that certain bottom tier schools do very well because their business model gives students more of what they want—bar-related courses, for example.
The moral lesson here is this: Let the government mess around with this structure by entry and exit controls and the wrong parties will come and go for the wrong reasons. Markets have many imperfections, but their one great advantage is their self-correcting quality in relation to new information.
John asks another question, which is why have the top 10 schools not expanded over the past 50 or so years? The point is quite dramatic because the average increase in size of top schools since I graduated in 1968 is in the order of 20 percent. Large firms have expanded often by ten fold in that same period, and more have come into play. The question is why?
And the answer relates to the peculiar mix of goods that they produce. Firms are systems that seek to maximize profits, and they have learned to get effective synergies across separate locations, and to coordinate the activities of different departments in the same building. They can also divide into specialty areas and development compensation formulas that reflect different levels of firm and department competition so that super specialists like tax lawyers can be compensated at higher levels. It does not always work and occasionally firms split up because they cannot bridge the competence gap from top to bottom.
Law schools can’t function that way and remain a scholarly operation. Separate campuses do not do it. Direct interaction is required. Quality control is very important because these differences in ability cannot be arbitraged out by wage differences. So they have to remain cohesive and small, which in turn gives other schools a chance to rise. And make no mistake about it, from top to bottom in the academy the gaps have narrowed, as an expanded supply of able professors gives second tier schools the real chance to grow up.
Again, this is not a reformist campaign. It is just an effort to get the descriptive economics right so that we do not fall into the indignation and regulation trap because we fail to understand how complex environments shape behaviors in both the profit and nonprofit sector.
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Nov '10
Re: Rational Cutbacks in Legal Education
Isn't there also a limited supply of students that meet the standards adopted by those schools? (Especially given that they have an unspoken commitment to meeting certain race and sex quotas.)