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3 Eur. J.L. & Econ. 5 (1996)

handle is hein.journals/eurjlwec3 and id is 1 raw text is: European Journal of Law and Economics, 3:5-37 (1996) © 1996 Kluwer Academic Publishers The Economics of Notaries BENITO ARRUNADA Pompeu Fabra University, Department of Economics, 08008-Barcelona, Spain Abstract In civil law legal systems, notaries fulfill two crucial roles, acting as both law enforcers and court officers, and as facilitators and enforcers of private transactions. In these countries, notaries achieve economies of scope by simultaneously providing private and public services and substituting both parties' lawyers. This arrangement is subject, however, to serious conflicts of interest that could prejudice the provision of public services that have attributes of externalities, as well as the notary's independence from all parties to the transaction. This paper shows how this notary system may be efficient in this context. Focusing on Spanish notaries, it analyzes the legal and economic nature of the services, the incentives that control their provision, and the cost in terms of com- petitive restraints that could be generated by the organizational patterns making up such incentives. Supporting empirical evidence is also provided. Keywords: notaries, professions, careers, quasi-rents, self-selection, civil service 1. Introduction Notaries in civil law countries provide a varied and complex series of services that include not only official authentication of documents, or fides publicae, but also a measure of con- trol over the legality of contracts and assistance to the parties to them.1 Notaries thus per- form many of the public functions accomplished by ex post law enforcement mechanisms and the courts and many of the private functions performed mainly by lawyers in common law countries. There are also notaries in common law countries, but these so-called notaries have nothing in common with civil law notaries except for the name. In some cases they are not even law professionals but act only as qualified witnesses and neither assist the parties nor contribute authenticity to contracts but only to their signature and questions of capacity. Furthermore, in the United States, in particular, the guarantee provided by notaries and land registration is replaced by title insurance. As an illustration of the dif- ferences in nature and cost between both legal structures, Table 1 summarizes the com- position and amount of the legal costs associated with the purchase and sale of real estate in the United States and Spain. That U.S. notaries provide very few services makes it possible for them to be much cheaper. On the other hand, the value added by civil law notaries and the land registry is implicitly shown by the absence of lawyers in the transaction, as well as by the lower total cost. The differences between the two systems are so great and the functions of common law notaries so residual that hereinafter I will tend to use the term notary to refer only to the civil law type of notary.2 In addition to the full array of services they provide, the common structure of civil law notary systems has other well-defined characteristics-such as barriers to entry and regulation

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