Legal Protection in Retail Financial Markets

Given the importance of sound advice in retail financial markets and the fact that financial institutions outsource their advice services, what legal rules maximize social welfare in the market? We address this question by posing a theoretical model of retail markets in which a firm and a broker face a bilateral hidden action problem when they service clients in the market. All participants in the market are rational, and prices are set based on consistent beliefs about equilibrium actions of the firm and the broker. We characterize the optimal law within our modeling context, and derive how the legal system splits the blame between parties to the transaction. We also analyze how complexity in assessing clients and conflicts of interest affect the law. Since these markets are large, the implications of the analysis have great welfare import.

Ethics in ADR Representation: A Roadmap of Critical Issues

Much ink has been spilled in recent years on the ethics and standards that should be applied to third party neutrals acting as mediators, arbitrators or evaluators in a variety of alternative (or as we now say, appropriate ) dispute resolution fora. Much less ink has been spilled on what could be an even more difficult issue: Should different ethical standards be applied to lawyers who serve as representatives inside ADR processes than the usual rules applied to lawyers in their roles as advocates or counselors in the more traditional adversary system