What if generative AI drives an increase in demand for legal services? What if Jevons Paradox applies here and by increasing the efficiency of legal delivery we actually enlarge demand for lawyers, not the opposite?
This is a question explored by Anoop Singh, Co-Founder of CallidusAI, a new legal genAI startup that handles transactional and dispute needs.
It’s a great area to explore and central to it is Victorian thinker, William Jevons, who stated in what became ‘Jevons Paradox’, that increasing efficiency in resource use leads to a corresponding increase in the consumption of that resource. Or, in other words, if legal services become a lot more efficient, then the demand for and use of legal services will also increase.
In short, the best way for lawyers to prosper is to embrace legal tech as much as possible, as that will drive demand – not reduce it.
And now, here is Anoop’s analysis, which is a great read. Enjoy.
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In the early 1900s, cross-country travel by train took approximately six days. Take a car instead, and you were spending weeks traversing the US, including a lot of time spent repairing your vehicle and getting it unstuck from muddy roads. The advent of reliable and accessible air travel has turned that same trip into about five and a half hours. And yet, today, instead of pocketing that savings, the average person travels more than ever.
The English Economist William Stanley Jevons described this paradoxical phenomenon in his 1865 book ‘The Coal Question’. At the time, the advent of a new type of steam engine was expected to reduce the depletion of England’s coal reserves because the innovative steam engine burned coal far more efficiently. Jevons postulated that the opposite would happen – that making energy by burning coal more efficiently and thus more cheaply would result in an increase in demand for coal and deplete reserves even more. That is precisely what happened.
A primary factor for this paradox is the latent demand that is unleashed once technological innovation is launched.
Latent Demand
It is commonly understood that Apple’s iPod and iTunes ushered in a huge increase in music consumption by making music more accessible. In another example – adding lanes on a highway often does not reduce travel time. In the field of hydrology, the “reservoir effect” refers to how adding reservoirs exacerbates water management issues instead of guarding against them because consumers believe they have more water to use.
In these cases and many more, there was a latent demand – far more desire for a resource, capability, or service than what was conveniently available. And because of the lack of convenience, the true total amount of demand was misunderstood and underestimated.
A change or technological innovation that increased accessibility and availability resulted in large and unexpected increases in demand. Clayton Christensen’s seminal work ‘The Innovator’s Dilemma’ speaks to this as well – disruptors gain because they produce something that is simpler, cheaper, and more accessible.
Jevons Paradox and Latent Demand in Legal
How does this relate to the legal profession?
Legal is presented with a game-changing technological innovation in LLMs / generative-AI. The same deep legal research, contract red-lining, and other legal work can now happen in minutes instead of hours. The questions being repeatedly asked and fretted about are – will AI reduce or eliminate the need for lawyers? And, will legal service providers be disrupted severely due to far fewer hours needing to be billed?
The foundation for Jevons Paradox is here, with an innovation that makes far more efficient the execution of a particular service. So, for Jevons Paradox to work, there needs to be latent unmet demand for legal services.
Over the last seven decades, the amount of lawyers in the US has increased about six times, despite the overall population only doubling. And let’s assume that the supply of lawyers is a suitable proxy for legal services demand. During this same time, we have seen significant technological innovations that have made legal work more efficient. Some examples are the computer and the internet. So, despite executing legal work becoming orders-of-magnitude more efficient, the demand for legal services has grown many times over.
Have we tapped all the unmet demand for legal services?
There are thousands of businesses that work with thousands if not tens- or hundreds-of-thousands of agreements without the use of attorneys. CEOs, CFOs, COOs of these smaller businesses routinely spend hours of their own time doing work they would gladly hand over to an attorney given the right value proposition. In-house legal teams are cost centers and entirely under-resourced. Startups rarely invest in beyond-minimum legal resources, whether internally or externally, until they feel they have sufficient size and traction. They weigh the tradeoffs and consciously take on increased risk in order to divert funds to revenue-generating areas.
Imagine how much more thorough contracts could be if understanding and processing them could happen near instantly. Imagine how much less surface area organizations would expose to risk if they could get legal advice in a fraction of the time and cost as today.
As is the case with many instances of latent demand, it is hard to quantify, but we strongly believe that there is far more true demand for legal services and sound legal advice than what is seen today.
The Coming Increase in Demand for Legal Services
In the post-AI world, attorneys will be getting their work done far more quickly and thoroughly. However, attorneys will be serving their clients far more deeply, serving more clients, and tackling many more legal questions. More individuals and companies will ask for more legal advice, especially in such a litigious society as the US. Firms that typically have not engaged attorneys will do so. Questions that today are not brought to attorneys will be put forth to them.
We will see Jevons Paradox at play once again.
Stay tuned for Part 2 of the Legal in a Post-AI World blog series. We will explore how to best ensure you are prepared for this post-AI world where the demand for legal services will increase.
Note: We are grateful to P. McCormick for his inspiring article on this topic. His ideas have shaped our conviction in the bright future for the legal profession thanks to legal AI.
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Many thanks to Anoop Singh and CallidusAI for this.