Coase, transaction costs, and arguments for in-house counsel

Ever since an economist named Ronald Coase first publicized the idea, economists have recognized that companies tend to do work internally whenever doing it externally would cost more or where the transaction costs of coordinating with outside counsel are high (See my posts of Aug. 14, 2005 about the transaction costs of transferring lawsuits and Feb. 18, 2006 about fixed inside costs and variable outside costs.).

This economic doctrine of transaction costs applies to law departments. By the use of in-house counsel, who presumably cost less per hour than outside counsel, the company benefits as to both cost, control and quality assurance (See my post of March 26, 2006 on 14 other economic concepts.). I have often said that about $450,000 a year of foreseeable payments to outside counsel in an area of law justifies hiring a lawyer. Another instance: One of the claimed benefits from convergence is lower transaction costs as firms and departments become more familiar with each other.