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Attorney advertising routinely targets tort victims. This paper reviews legal services advertising restrictions in the United States and abroad. A theoretical model is developed which incorporates advertising intensity, litigation costs, and an endogenous number of lawsuits. Since advertising induces victims to bring suit, it increases the level of injurer care. However, litigation costs are also incurred. At the optimum, the marginal benefit of deterrence equals the sum of marginal litigation and advertising costs. Extensions of the model are considered, including the possibility that advertising stirs up frivolous lawsuits and that firms use advertising to rent seek. Fee shifting and alternative fee structures are also discussed. Although blanket prohibitions on attorney advertising are likely suboptimal, some regulations may be justified.

Attorneys utilize a variety of media to advertise their legal services, including television, the Yellow Pages, the Internet, billboards, and other outlets. Many of these advertisements target tort victims. Proponents of attorney advertising argue that it provides valuable information regarding legal services to the poor and uneducated segments of society. At the same time, opponents maintain, among other things, that advertising tarnishes the reputation of the legal profession and decreases the quality of legal services. This paper addresses the question of what is the optimal level of attorney advertising. The argument is organized as follows. Section 2 discusses attorney advertising restrictions in various jurisdictions around the world, with particular emphasis placed on the United States. Before the United States Supreme Court's ruling in Bates v. State Bar of Arizona (1977),1 advertising by attorneys was explicitly prohibited. However, since the Bates decision, which held that attorney advertising was a protected form of commercial free speech, attorney advertising expenditures have increased dramatically. Similar to the United States, many countries today permit attorney advertising, though there are some exceptions. Section 3 then provides a brief literature review of the economics of advertising with special attention to legal services. While there are many articles focusing on the empirical impact of advertising on the price and quality of legal services in the economic literature, it is devoid of a thorough theoretical analysis of the welfare implications of attorney advertising. Section 4 seeks to fill this gap by developing a theoretical model based on the trade-off between the informative effects of advertising, which enhances the deterrence benefits of the tort system, against the likely increase in litigation costs. We consider the possibility that advertising stirs up frivolous suits, evaluate the effect of advertising on competition for clients, investigate the impact of different fee structures as well as fee shifting, and explore the use of a negligence rule rather than strict liability. Section 5 discusses the policy implications of the model, and finally, Section 6 concludes.

Attorneys routinely advertise their legal services. Many of these advertisements target personal injury victims. In this paper, we developed a theoretical model that incorporated attorney advertising intensity, litigation costs, and an endogenous number of lawsuits. The results showed that attorney advertising is capable of inducing injurers to exercise additional care, but it also increased the number of victims utilizing the civil justice system, which increased litigation costs. A proper assessment of the optimal level of attorney advertising requires a trade-off between the benefits of deterrence and the costs of litigation and advertising. Despite incorporating the possibilities of frivolous lawsuits, rent seeking by firms, fee shifting, and alternative fee structures, the preceding economic theory does not provide conclusive evidence of whether firms are investing too much or too little in advertising. Nonetheless, it suggests that blanket prohibitions on attorney advertising are unlikely to be optimal. However, when the social costs associated with advertising are sufficiently high, ethical regulations on attorney advertising may be welfare improving. Absent further research, however, there is little more we can say about optimal restrictions in general. Given the broad rubrics employed by both the United States Supreme Court and the European Court of Justice, the precise form, substance, and degree of these ethical restrictions is best left for policymaker debate.