Asymmetric Information and Credence Goods: Why Choosing a Family Solicitor Is So Difficult

People looking for family solicitors in Cambridge will see an economist's "puzzle"—variation of prices, quality not easily determined, and doubts remain after services are provided. Clients do not lack intelligence—the above factors indicate that the economist's information flaw is a result OF the CRE=Cre-edence goods: asymmetric information, signalling to third parties.

The main area of difficulty for evaluating family law is that not all services can be evaluated easily; therefore, family law services are dependent upon trust, reputation, and the potential for institutional regulation to facilitate effective market efficiency.

Asymmetric Information in Legal Services

Why clients cannot easily judge quality

The term "asymmetric information" refers to the difference in knowledge between two parties in a transaction, with one party having more relevant information than the other. Family law presents a classic example of this phenomenon. Family law attorneys have extensive knowledge about procedural strategies, anticipated court behavior, negotiation techniques and associated legal risks, whereas their clients typically do not.

In contrast to purchasing a tangible product, you cannot assess the "quality" of the services of an attorney prior to receiving them. Most importantly, the quality of the services often cannot be evaluated after the fact either. Once a divorce settlement is reached, the client may never be in a position to determine whether or not a better result could have been achieved had there been alternative choices under the same set of circumstances. As a result, family law is classified as a credence good, a category that is typically discussed in the field of microeconomics along with the areas of healthcare and education.

Economists have long contended that credence goods will suffer from a breakdown in the market, if they are left unregulated, because consumers are unable to determine the quality of the service provided either prior to or subsequent to the provision of the service.

Signalling and Reputation as Market Solutions

How trust is manufactured, not assumed

When quality cannot be directly observed, signals are used to infer quality in a market. Examples of such signals in family law include expertise in family law, years of practice, published cases, third-party referrals, and professional accreditation.

Reputation plays an outsized role in this industry. Most family solicitors are typically used by clients only once, which means reputation must be conveyed through third parties. These include referral networks, word-of-mouth recommendations, and professional bodies.

This is consistent with Spence’s signalling theory. Costly signals—such as time investment, training, and accreditation—can communicate quality, as higher-quality providers are more willing and able to incur these costs. Institutions such as the Law Society of England and Wales establish minimum quality standards and provide disciplinary oversight, thereby reducing the risk of adverse selection by enforcing a minimum quality threshold.

Pricing, Quality, and Adverse Selection

Why “cheaper” is not always cheaper

If buyers cannot observe the quality of the good or service they are buying, then low-quality suppliers would put high-quality suppliers out of business unless there are credible signals of quality to differentiate between suppliers. Price also plays a role in the signalling process.

Historically, paying higher fees can serve as a proxy for a supplier’s experience and may reduce the likelihood that the supplier will incur losses, albeit an imperfect proxy. The existence of such a proxy—that buyers pay higher fees for certain services—does not imply that more expensive suppliers will always provide better outcomes. Rather, it helps explain why markets of this type do not converge toward uniformly low prices.

Rather than purchasing a clearly measurable output, clients often purchase a substantial reduction in uncertainty regarding how their case will be resolved.

Statistical data from the UK Ministry of Justice shows that contested family law cases take longer to resolve than mediated or otherwise well-structured negotiated cases, and they impose substantial costs on courts, employers, and families. Consequently, higher-quality legal services may reduce total social costs, even if they involve higher private costs for clients.

Institutional Trust Mechanisms

How markets avoid breakdown

The fact that credence goods are subject to exploitation leads to the development of institutional mechanisms. Factors such as professional regulation, complaints procedures, and judicial oversight are designed to mitigate the incidence of opportunism by service providers. In addition to these institutional mechanisms, various forms of client interaction (e.g., reviews and online ratings) may constrain opportunistic behavior; however, economists are cautious, as many reviews tend to emphasize bedside manner rather than legal quality.

Courts themselves function only partially as auditing entities. There exists a feedback loop between judges and solicitors arising from repeated interaction, which does not rely on clients’ knowledge. This creates stability in expected pricing and behavior within a given local market over time.

Economic Ramifications

Family law represents more than just "the extraction of money from families" on an economic level; it also serves as an example of how markets respond to great disparities in available and known information in addition to the significant impacts that emotions and finances have on the outcome of a legal issue. In family law, if there were no signalling and/ or trust mechanisms to alleviate the problems being faced by families going through a family law issue, we would be left with severe adversity selection, a much poorer outcome, and a much greater social cost.

For economists who study the field of family law, family lawyers serve an excellent example of how the field of information economics operates in the actual world. This is because in family law, prices reflect the uncertainty of what is going to happen, qualities of a good outcome are generally inferred rather than directly observed and institutions (family lawyers) have as great of a value as markets do.

This article contains information only and is not a substitute for any real advice from a qualified professional. If you have a problem finding a lawyer, you should contact a qualified lawyer or professional.