An economic perspective on notaries Brussels, December 13 th 2006 Barbara Baarsma

Economists have only recently the debate Self-regulation is characterised as, potentially, having the effect of a cartel, by controlling entry to the market and setting an agreed price above the competitive price, members of the profession earn economic rents. […] From this perspective the regulation of markets for professional services is seen to arise or at least is sustained because it is in the interests of the members of the profession. Stephen, F.H. & Love, J.H. (1996). Regulation of the legal profession. Discussion paper, Glasgow: University of Strathclyde.

Analysis in terms of public interests (1) The Better Regulation COM(2004) 83 final: proportionality test: Rules must be objectively necessary to attain a clearly articulated and legitimate public interest objective, and It must be the mechanism least restrictive of competition to achieve that objective

Analysis in terms of public interests (2) What is the public interest at play? Legal security Imagine a situation without government – what happens? Regulation may be justified if… Market failures: A lack of competition Positive and negative external effects Public goods Information asymmetry Non-economic: inequality, paternalism

Analysis in terms of public interests (3) Notaries services: Information asymmetry – experience goods and principal agent problem Inequality: legal advice should be affordable Paternalism: the uninformed layman should (sometimes) be obliged to hire legal advice

Guaranteeing public interests (1) Notaries Act 1999 (Wet op het Notarisambt) greater scope for junior notaries to become a notary and allows notaries more freedom in the fees they are permitted to charge.

Guaranteeing public interests (2) The Dutch notary is granted a professional monopoly to provide these services (domein monopolie) A Dutch notary has to offer full services that fall under his jurisdiction (ministerieplicht) Real property services Family servicesCorporate services Conveying real property Creating or canceling mortgages Drawing up or amending marriage contracts and domestic partnership agreements Drawing up or altering wills Providing for gifts and donations in a notarial deed Incorporating public and private limited liability companies Establishing foundations and associations

Guaranteeing public interests (3) Self regulation Code of conduct Advertising Code Ratification scheme Disciplinary law

Effects of regulation (1) Prices: Have gone down in some segments/regions Have gone up in other segments/regions Hourly tariffs have increased by 13% in , whereas inflation increased by 5% in this period Quality: Some (debated) indication of lower of quality (integrity issues) Entrance: Number of notaries did not increase much compared to other variables (next slides) Number of notaries offices decreases every year more concentration

Effects of regulation (2)

Effects of regulation (3)

Room for improvement… also in The Netherlands Several barriers of entrance still exist Allow for specialization Reduce period of internal education Eliminate the business plan requirement Define and measure quality and tell consumers about it Voluntary reform: the way forward? Social Cost Benefit Analysis is a suitable method to address the second part of the proportionality test

Some other topics related to the Schmid et al. paper (1) Questions about the number of and the representativeness of respondents

Prices on the internet (1) Ten lowest offers Source: Based on notary fee including VAT for conveyance and mortgage instrument of http://

Prices on the internet (2) Ten highest offers Source: Based on notary fee including VAT for conveyance and mortgage instrument of http://

Some other topics related to the Schmid et al. paper (2) Questions about the low score for The Netherlands for the MERI Market entry and MCRI Market Conduct: What is the benchmark? (the theoretical minimum or the practical average level of regulation?)

Some other topics related to the Schmid et al. paper (3) Questions about the variables used in the econometric analysis (market outcome indices): Quality differs (dissatisfaction-satisfaction) Functioning (no problems – many problems) What sample size are these variables based on?

Thank for your attention! Dr. Barbara Baarsma