The Market for Lawyers and Social Capital: Are Informal Rules a Substitute for Formal Ones?

Japan's prefecture-level panel data is used to examine how the demand for lawyers is affected by social capital after controlling for economic conditions. The main findings from a fixed effects model are: (1) The demand for lawyer is smaller when people live close and cohesively. (2) Conflicts generated by bankruptcies cause people to seek legal resolutions, thus relying on lawyers. Nevertheless, the elasticity of demand in Japan is small, reflecting a feature of Japan that the norm is to settle a matter informally.