Law Department Management Blog
Having hypothesized that the legal intensity of a company is in part a function of the pace of technological change in its industry, I have written about how we might measure the technological intensity of an industry (See my post of Dec. 3, 2009: R&D intensity.). One measure often used by researchers is the rate of investment in research and development while another is patent activity.
The Acad. Mgt. Rev., Dec. 2001 at 1158, offers a third method, a version of the Solow residual, total factor productivity (TFP) growth. When researchers could not explain the historic rate of GDP growth entirely by increases in labor and capital, they plugged in a residual. Through the efforts of Robert Solow, the residual came to be recognized as a technology measure. To track TFP growth for any four digit manufacturing SIC code, researchers turn to the Bartelsman-Gray database. A TPF rate should correlate to total legal spending.
It also seems to me that competitive intensity should associate with higher levels of legal spending. Industries of numerous firms that are relatively equal in terms of market share typically have high rivalry and competitiveness. The same article, therefore, used three measures of competitiveness: (1) number of industry competitors, (2) the inverse of the four-firm market concentration [the percentage of the total market shared by the four biggest firms], and (3) the inverse of the Herfindahl-Hirschmann index of market shares (See my post of Aug. 5, 2010: the Herfindahl index.). As with the various measures of technological intensity, measures of industry competitiveness will likely shed light on key benchmarks such as total legal spending.