Abstract
This paper explains the important role lawyers play as ‘transaction cost engineers’, in facilitating negotiations and in contracting. It analyses the significant contributions made by Ronald H. Coase on the importance of paying attention to transaction costs, as well as the lessons that can be derived from the so-called Coase Theorem. It also looks at the role contemporary lawyers can and should play outside of a litigation setting, as well as the nature of legal education on training lawyers as transaction cost engineers. The opportunities brought about by the increased use of information technology in legal practice are also considered.
Dr. Dennis Wye Keen Khong, Associate Professor, Faculty of Law, Multimedia University, Malacca, Malaysia, Email: wkkhong@mmu.edu.my.
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Notes
- 1.
R. H. Coase, ‘The Institutional Structure of Production’ (1992) 82(4) American Economic Review 713.
- 2.
Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (W Strahan and T Cadell, 1776) bk 4 ch 2: ‘As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it’.
- 3.
R. H. Coase, ‘The Nature of the Firm’ (1937) 4(16) Economica 386, 390.
- 4.
Jürg Niehans, ‘Transaction Costs’, The New Palgrave: A Dictionary of Economics (Macmillan Press 1987) 676; Douglas W. Allen, ‘Transaction Costs’, Encyclopedia of Law and Economics (Edward Elgar Publishing 2000) 893.
- 5.
Benjamin Klein, Robert G. Crawford and Armen A. Alchian, ‘Vertical Integration, Appropriable Rents, and the Competitive Contracting Process’ (1978) 21(2) Journal of Law and Economics 297; see also, Ronald Coase, ‘The Conduct of Economics: The Example of Fisher Body and General Motors’ (2006) 15(2) Journal of Economics & Management Strategy 255.
- 6.
Coase, ‘The Nature of the Firm’ (n 3) 386.
- 7.
R. H. Coase, ‘The Federal Communications Commission’ (1959) 2 Journal of Law and Economics 1.
- 8.
Leo Herzel, ‘“Public Interest” and the Market in Color Television Regulation’ (1951) 18(4) University of Chicago Law Review 802.
- 9.
(1879) 11 Ch D 852.
- 10.
George J. Stigler, Memoirs of an Unregulated Economist (University of Chicago Press, 2003) 76: ‘We strongly objected to this heresy. Milton Friedman did most of the talking, as usual. He also did much of the thinking, as usual. In the course of two hours of argument the vote went from twenty against and one for Coase to twenty-one for Coase. What an exhilarating event! I lamented afterward that we had not had the clairvoyance to tape it.’
- 11.
Ronald H. Coase, ‘The Problem of Social Cost’ (1960) 3 Journal of Law and Economics 1.
- 12.
Fred R. Shapiro and Michelle Pearse, ‘The Most-Cited Law Review Articles of All Time’ (2012) 110(8) Michigan Law Review 1483.
- 13.
George J. Stigler, The Theory of Price (Macmillan Publishing, 3rd ed, 1966) 113: ‘The Coase theorem thus asserts that under perfect competition private and social costs will be equal’; George J. Stigler, The Theory of Price (Macmillan Publishing, 4th ed, 1987) 322: ‘[T]he “Coase Theorem” … asserts that legal rules would have no influence upon the use of resources in a world of zero transaction costs’.
- 14.
[1978] QB 479.
- 15.
Ben Depoorter and Sven Vanneste, ‘Putting Humpty Dumpty Back Together: Experimental Evidence of Anticommons Tragedies’ (2006) 3(1) Journal of Law, Economics & Policy 1.
- 16.
Robert Cooter, ‘The Cost of Coase’ (1982) 11(1) The Journal of Legal Studies 1; Robert Cooter and Thomas Ulen, Law & Economics (Pearson, 6th ed, 2012) 92.
- 17.
Guido Calabresi and A. Douglas Melamed, ‘Property Rules, Liability Rules, and Inalienability: One View of the Cathedral’ (1972) 85(6) Harvard Law Review 1089.
- 18.
Thomas J. Miceli and Kathleen Segerson, ‘The Economics of Eminent Domain: Private Property, Public Use, and Just Compensation’ (2007) 3(4) Foundations and Trends® in Microeconomics 275.
- 19.
Ronald J. Gilson, ‘Lawyers as Transaction Cost Engineers’ in Peter Newman (ed), The New Palgrave Dictionary of Economics and the Law (Palgrave Macmillan, 1998).
- 20.
Michael J. Trebilcock, ‘Rethinking Consumer Protection Policy’ in Charles E. F. Rickett and Thomas G. W. Telfer (eds), International Perspectives on Consumers’ Access to Justice (Cambridge University Press, 2003) 68.
- 21.
Lisa Bernstein, ‘The Silicon Valley Lawyer as Transaction Cost Engineer?’ (1995) 74 Oregon Law Review 239.
- 22.
See Wilfrid E. Rumble, ‘Legal Realism’, Encyclopedia of the American Constitution (Macmillan Reference USA, 1986) http://www.encyclopedia.com/politics/encyclopedias-almanacs-transcripts-and-maps/legal-realism.
- 23.
Klaus Schwab, The Fourth Industrial Revolution (World Economic Forum, 2016).
- 24.
Some people believe that there is a difference between the terms ‘lawtech’ and ‘legal-tech’, such that the former covers disruptive technologies which bypass the use of lawyers, whereas the latter is confined to technologies used by lawyers. See The Law Botique, ‘Is There a Difference Between LawTech and LegalTech?’, medium.com (6 December 2018) https://medium.com/@thelawboutiquelondon/is-there-a-difference-between-lawtech-and-legaltech-68f776d5ab98.
- 25.
See The Law Society, ‘Lawtech Adoption Research’ (14 February 2019) https://www.lawsociety.org.uk/support-services/research-trends/lawtech-adoption-report/.
- 26.
Richard Susskind, Tomorrow’s Lawyers: An Introduction to Your Future (Oxford University Press, 2013); Richard E Susskind, ‘Expert Systems in Law: A Jurisprudential Approach to Artificial Intelligence and Legal Reasoning’ (1986) 49(2) Modern Law Review 168.
- 27.
Richard Susskind, The Future of Law: Facing the Challenges of Information Technology (Clarendon Press, 1996).
Bibliography
Books
Allen, Douglas W, ‘Transaction Costs’, Encyclopedia of Law and Economics (Edward Elgar Publishing 2000)
Cooter, Robert and Thomas Ulen, Law & Economics (Pearson, 6th ed, 2012)
Encyclopedia of Law and Economics (2000)
Gilson, Ronald J, ‘Lawyers as Transaction Cost Engineers’ in Peter Newman (ed), The New Palgrave Dictionary of Economics and the Law (Palgrave Macmillan, 1998)
Newman, Peter (ed), The New Palgrave Dictionary of Economics and the Law (Palgrave Macmillan, 1998)
Niehans, Jürg, ‘Transaction Costs’, The New Palgrave: A Dictionary of Economics (Macmillan Press 1987)
Rickett Charles E F and Thomas GW Telfer (eds), International Perspectives on Consumers’ Access to Justice (Cambridge University Press, 2003)
Rumble, Wilfrid E, ‘Legal Realism’, Encyclopedia of the American Constitution (Macmillan Reference USA, 1986) http://www.encyclopedia.com/politics/encyclopedias-almanacs-transcripts-and-maps/legal-realism
Schwab, Klaus, The Fourth Industrial Revolution (World Economic Forum, 2016)
Smith, Adam, An Inquiry into the Nature and Causes of the Wealth of Nations (W Strahan and T Cadell, 1776)
Stigler, George J, Memoirs of an Unregulated Economist (University of Chicago Press, 2003)
Stigler, George J, The Theory of Price (Macmillan Publishing, 3rded, 1966)
Stigler, George J, The Theory of Price (Macmillan Publishing, 4th edition, 1987)
Susskind, Richard, The Future of Law: Facing the Challenges of Information Technology (Clarendon Press, 1996)
Susskind, Richard, Tomorrow’s Lawyers: An Introduction to Your Future (Oxford University Press, 2013)
Trebilcock, Michael J, ‘Rethinking Consumer Protection Policy’ in Charles E F Rickett and Thomas G W Telfer (eds), International Perspectives on Consumers’ Access to Justice (Cambridge University Press, 2003)
Cases
Lord Bernstein of Leigh v Skyviews & General Ltd [1978] QB 479
Sturges v Bridgman (1879) 11 Ch D 852
Articles
Bernstein, Lisa, ‘The Silicon Valley Lawyer as Transaction Cost Engineer?’ (1995) 74 Oregon Law Review 239
Calabresi, Guido and A Douglas Melamed, ‘Property Rules, Liability Rules, and Inalienability: One View of the Cathedral’ (1972) 85(6) Harvard Law Review 1089
Coase, R H, ‘The Federal Communications Commission’ (1959) 2 Journal of Law and Economics 1
Coase, R H, ‘The Institutional Structure of Production’ (1992) 82(4) American Economic Review 713
Coase, R H, ‘The Nature of the Firm’ (1937) 4(16) Economica 386
Coase, Ronald H, ‘The Problem of Social Cost’ (1960) 3 Journal of Law and Economics 1
Coase, Ronald, ‘The Conduct of Economics: The Example of Fisher Body and General Motors’ (2006) 15(2) Journal of Economics & Management Strategy 255
Cooter, Robert and Thomas Ulen, Law & Economics (Pearson, 6th ed, 2012) 92
Cooter, Robert, ‘The Cost of Coase’ (1982) 11(1) The Journal of Legal Studies 1
Depoorter, Ben and Sven Vanneste, ‘Putting Humpty Dumpty Back Together: Experimental Evidence of Anticommons Tragedies’ (2006) 3(1) Journal of Law, Economics & Policy 1
Herzel, Leo, ‘“Public Interest” and the Market in Color Television Regulation’ (1951) 18(4) University of Chicago Law Review 802
Klein, Benjamin, Robert G Crawford and Armen A Alchian, ‘Vertical Integration, Appropriable Rents, and the Competitive Contracting Process’ (1978) 21(2) Journal of Law and Economics 297
Miceli, Thomas J and Kathleen Segerson, ‘The Economics of Eminent Domain: Private Property, Public Use, and Just Compensation’ (2007) 3(4) Foundations and Trends® in Microeconomics 275
Shapiro, Fred R and Michelle Pearse, ‘The Most-Cited Law Review Articles of All Time’ (2012) 110(8) Michigan Law Review 1483
Susskind, Richard E, ‘Expert Systems in Law: A Jurisprudential Approach to Artificial Intelligence and Legal Reasoning’ (1986) 49(2) Modern Law Review 168
Other
The Law Botique, ‘Is There a Difference Between LawTech and LegalTech?’, medium.com (6 December 2018) https://medium.com/@thelawboutiquelondon/is-there-a-difference-between-lawtech-and-legaltech-68f776d5ab98
The Law Society, ‘Lawtech Adoption Research’ (14 February 2019) https://www.lawsociety.org.uk/support-services/research-trends/lawtech-adoption-report/
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Khong, D.W.K. (2020). The Future of Lawyers as Transaction Cost Engineers. In: Zan, M. (eds) Legal Education and Legal Traditions: Selected Essays. SpringerBriefs in Environment, Security, Development and Peace, vol 34. Springer, Cham. https://doi.org/10.1007/978-3-030-50903-3_2
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