The cost of no costs

The reason businesses have employees rather than contracting out everything is to reduce transaction costs. If a company needs enough graphics work, they hire a graphic artist rather than outsourcing every little project, eliminating the need to evaluate bids, write contracts, etc. Some things are easier when no money has to change hands.

But some things are made more complicated because money does not change hands. In-house transactions don’t require monetary negotiation, but they require emotional and political negotiation. Discussions can become unnecessarily heated because things don’t have prices. Discussions drift toward arguments over what is and is not possible rather than discussions of trade-offs based on cost.