Using micro-level data (from tax records) on attorney incomes in
2004, we reconstruct the industrial organization of the Japanese legal services industry.
These data suggest a bifurcated bar. The most talented would-be lawyers (those with the
highest opportunity costs) pass the bar-exam equivalent on one of their first tries or
abandon the effort. If they pass, they then opt for careers in Tokyo that involve complex
litigation and business transactions. The work places a premium on their talent, and
from it they earn appropriately high incomes. The less talented face lower opportunity
costs, and willingly spend many years studying for the exam. If they eventually pass,
they tend to forego the many amenities available to professional families in Tokyo and
disproportionately opt for careers in the under-lawyered provinces. There, they earn
monopoly rents not available in the far more competitive Tokyo market.
Also John M. Olin Center for Law, Economics, and Business, Working Paper no. 559.
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