I am a Ph.D. economist with over 25 years of experience looking at the economic effect of public policy decisions. I am a Senior Fellow at The Wharton Business School of the University of Pennsylvania. For the past sixteen years I was a Professor of Finance at Louisiana State University and for the ten years preceding I was a tenured Associate Professor and Assistant Professor at Drexel University.
I recently conducted an economic impact study on the likely effects of Senate Bill 21 (“SB 21”) on the Delaware economy. Based on my findings, a reasonable estimate of the annual economic activity lost due to SB 21’s passage is $117 million – $235 million in decreased economic activity and 450 – 900 lost jobs, statewide.
In 2019, the Delaware State Bar Association conducted a study titled The Contributions of the Legal Industry to the Delaware Economy, which estimated that the legal industry contributes $2.4 billion to Delaware’s economy annually. The study observed the economic effects of Delaware’s robust legal industry, which employs attorneys and all manner of support staff, such as paralegals, investigators, assistants, court reporters, and other office workers. The study further examined how “out-of-state attorneys—along with their staffs, consultants, and other team members—generate revenue for the Delaware real estate, hospitality, and restaurant industries.”
Given the significance of the legal industry, I would have expected the proponents of SB 21 to undertake a similar analysis, as SB 21 is designed to suppress certain litigation in Delaware—particularly, fiduciary duty litigation brought in the Delaware Court of Chancery. But while I have seen testimony and commentary from supporters saying that SB 21’s passage is important to Delaware’s economy, as it would help keep companies incorporated in the state and paying annual franchise taxes, I have not seen any analysis of the potential negative consequences of SB 21’s passage to the state economy, which due to slowing legal business in the state I estimate could reach up to $235 million in lost economic activity and 900 lost jobs.
To calculate the economic impact of SB 21, I used a Regional Input-Output Modeling System (“RIMS II”) analysis. RIMS II was pioneered by Nobel Prize winning economist Wassily Leontif and refined by the U.S. Department of Commerce. It is the standard method that governments and others use to measure the cost/benefit of projects that affect the economic activity of a geography, like the opening or closing of military bases, stadiums, and airports.
I started by estimating economic activity generated by the market sector that would be affected by SB 21—i.e., fiduciary duty litigation brought in the Delaware Court of Chancery. I begin by using market data on the Legal Industry. IbisWorld is an independent research service that for the last 50 years has provided detail on economic activity by market sector and geography. IbisWorld estimates that in 2024, “Corporate Law” generated $419 million in revenues in Delaware.
To determine how much of that $419 million arises from advising on or litigating corporate M&A transactions, which is the area of the industry targeted by SB 21, I estimated what percentage of the corporate lawyers in Delaware work on those matters. Based on a sample of the ten largest corporate defense firms and the five largest shareholder rights firms,[1] it appears that 51.3% of attorneys at those firms practice in the area targeted by SB 21. So I assume that approximately $215 million in total annual revenue is attributable to fiduciary-duty litigation. I estimate a reduction in revenue from fiduciary duty litigation of between $71 and $142 million with a “base case” estimate of $107.5 million. My “low case” estimate assumes a 33% reduction in revenue from fiduciary-duty litigation, the “base case” assumes a 50% reduction, and the “high case” assumes a 66% reduction.
These impacts will not be limited to lawyers. Next, I took “multipliers” generated by the U.S. Bureau for Economic Analysis (“BEA”) that measures how much a dollar of increased (or decreased) economic activity affects the overall output, wages, and job gains (or losses) in any geography. I applied these multipliers to analyze the impact in terms of lost revenue, lost earnings, and lost jobs in a “low case” “base case” and “high case” scenario. This analysis estimates:
- A decline in annual output ranging from $117 million to $235 million (with a base case estimate of $178 million)
- A decline in annual earnings ranging from $39 million to $78 million (with a base case estimate of $59 million)
- Job loss estimates ranging from 454 to 909 with (with a base case estimate of 688 jobs lost)
My analysis very likely understates the impact to Delaware, as it only estimates lost economic activity generated by law firms located in the state. The 2019 study from the Delaware State Bar Association referenced above notes the “4,500 attorneys who are not active members of the Delaware Bar [that] are admitted temporarily [each year] for the purpose of participating in particular cases,” with a substantial portion traveling for cases “directly related to Delaware’s Corporate Franchise.” My analysis does not include the impact associated with a reduction in these “visiting attorneys,” which the 2019 study noted “provide jobs and revenue not only for the legal sector but also for commercial real estate, hotels, restaurants, and general service providers.” The economic loss to Delaware only goes up if one accounts for the decrease in spending that will come if national law firms and large shareholders shift caseloads and investments to jurisdictions they perceive as providing a higher quality legal system.
[1] Potter Anderson & Corroon LLP, Richards Layton & Finger P.A., Morris Nichols Arsht & Tunnell LLP, Young Conaway Stargatt & Taylor LLP, Wilson Sonsini Goodrich & Rosati, Ross Aronstam & Moritz LLP, Skadden, Arps, Slate, Meagher & Flom LLP, Bayard P.A., Abrams & Bayliss, LLP, Morris James LLP, Grant & Eisenhofer P.A., Labaton Keller Sucharow LLP, Bernstein Litowitz Berger & Grossmann LLP, Prickett, Jones & Elliott, P.A., and Friedlander & Gorris, P.A.
Dr. Joseph R. Mason is a PhD economist with more than 25 years of experience applying structured economic reasoning to litigation, regulation, and public policy. Dr. Mason is a Fellow at the University of Pennsylvania’s Wharton School of Business and was previously an Associate Professor at Drexel University and Visiting Scholar the Federal Reserve Bank of Philadelphia.
