..we formulate a simply model where divorcing spouses can choose to hire a lawyer in their divorce process. A lawyer may affect the division of matrimonial property independent of the facts. We show that spouses encounter incentives as in the classical prisoners’ dilemma: Despite the zero sum nature of the game and their cost, each spouse has a clear incentive to hire a lawyer. In fact, if the expected benefits from hiring a lawyer outweigh the associated cost retaining a lawyer is a dominant strategy. We propose a simple institutional setting allowing for joint lawyers that facilitates to overcome this socially ineffcient situation and enables a second-best solution.
One can understand the dillemma faced by divorcing spouses. But what difference did hiring lawyers actually make to the outcome? Clearly the decision to hire a lawyer is non-random; one would expect divorcing spouses with less amicable relations to be more likely to pursue legal recourse. Yet the Austrian experience is that many spouses incur substantial lawyer fees without any gain in the division of matrimonial property:
This model is estimated and tested with data from court records. It turns out that in general there is no causal effect of the involvement of lawyers on the division of matrimonial property: Therefore, many spouses incur substantial lawyer fees without any benefit. There exists also no benefit of the engagement of lawyers in terms of more sustainable divorce settlements over time. On top of that lawyers prolong the divorce process. This excess burden of lawyers increases both private and public cost of divorce.
The policy implications are clear:
In order to overcome this worst case we suggest to tune the institutional setting in a way that as many of these couples as possible choose to hire a joint lawyer. A joint lawyer does not alter the divorce settlement either, (should) charges a lower fee and most importantly does not unnecessarily delay the divorce process.
Is this the case elsewhere, or unique to Austria? I would be interested in studies on the impact of lawyers on divorce settlements in other countries, such as the UK and United States. There's probably a paper here for the prolific Justin Wolfers and Betsey Stevenson team.