Institutionalism is a subject of study. Subject and method of institutional economics

The concept of an institution. The role of institutions in the functioning of the economy. Institutionalism and neoclassical economic theory. Old and new institutionalism. The main trends of modern neo-institutionalism.

The subject of studying institutional economics and its place in modern economic theory

Volchik V.V.

1. The concept of institution. The role of institutions in the functioning of the economy

Let's start our study of institutions with the etymology of the word institute.

to institute (English) - establish, establish.

The concept of institution was borrowed by economists from the social sciences, in particular from sociology.

An institution is a set of roles and statuses designed to satisfy a specific need.

Definitions of institutions can also be found in works of political philosophy and social psychology. For example, the category of institution is one of the central ones in John Rawls’s work “A Theory of Justice.”

By institutions I will mean a public system of rules that define office and position with corresponding rights and duties, power and immunities, and the like. These rules specify certain forms of action as permissible and others as prohibited, and they punish certain actions and protect others when violence occurs. As examples, or more general social practices, we can cite games, rituals, courts and parliaments, markets and property systems.

In economic theory, the concept of institution was first included in analysis by Thorstein Veblen.

Institutions are, in fact, a common way of thinking as regards the particular relations between society and the individual and the particular functions they perform; and the system of social life, which is made up of the totality of those acting at a certain time or at any moment in the development of any society, can, from the psychological side, be characterized in general terms as the prevailing spiritual position or the widespread idea of ​​\u200b\u200bthe way of life in society.

Veblen also understood institutions as:

Habitual ways of responding to stimuli;

The structure of the production or economic mechanism;

The currently accepted system of social life.

Another founder of institutionalism, John Commons, defines institution as follows:

An institution is a collective action to control, liberate and expand individual action.

Another classic of institutionalism, Wesley Mitchell, can find the following definition:

Institutions are dominant, and highly standardized, social habits.

Currently, within the framework of modern institutionalism, the most common interpretation of institutions is Douglas North’s:

Institutions are the rules, the mechanisms that enforce them, and the norms of behavior that structure repeated interactions between people.

The economic actions of an individual take place not in an isolated space, but in a certain society. And therefore has great importance how society will react to them. Thus, transactions that are acceptable and profitable in one place may not necessarily be viable even under similar conditions in another. An example of this is the restrictions imposed on human economic behavior by various religious cults.

In order to avoid the coordination of many external factors that influence success and the very possibility of making a particular decision, within the framework of economic and social orders, schemes or algorithms of behavior are developed that are the most effective under given conditions. These schemes and algorithms or matrices of individual behavior are nothing more than institutions.

2. Institutionalism and neoclassical economic theory

There are several reasons why neoclassical theory (early 60s) ceased to meet the requirements placed on it by economists who were trying to understand the real events in modern economic practice:

1. Neoclassical theory is based on unrealistic assumptions and limitations, and, therefore, it uses models that are inadequate to economic practice. Coase called this state of affairs in neoclassical theory “blackboard economics.”

2. Economic science expands the range of phenomena (for example, such as ideology, law, norms of behavior, family) that can be successfully analyzed from the point of view of economic science. This process was called “economic imperialism”. The leading representative of this trend is Nobel laureate Harry Becker. But for the first time, Ludwig von Mises wrote about the need to create a general science that studies human action, proposing the term “praxeology” for this purpose.

3. Within the framework of neoclassics, there are practically no theories that satisfactorily explain dynamic changes in the economy, the importance of studying which became relevant against the backdrop of historical events of the 20th century. (In general, within the framework of economic science, until the 80s of the 20th century, this problem was considered almost exclusively within the framework of Marxist political economy).

Now let us dwell on the basic premises of neoclassical theory, which constitute its paradigm (hard core), as well as the “protective belt”, following the methodology of science put forward by Imre Lakatos:

Hard core:

1. stable preferences that are endogenous in nature;

2. rational choice (maximizing behavior);

3. equilibrium in the market and general equilibrium in all markets.

Protective belt:

1. Property rights remain unchanged and clearly defined;

2. The information is completely accessible and complete;

3. Individuals satisfy their needs through exchange, which occurs without costs, taking into account the initial distribution.

A Lakatosian research program, while leaving the hard core intact, should be aimed at clarifying, developing existing ones, or putting forward new auxiliary hypotheses that form a protective belt around this core.

If the hard core is modified, then the theory is replaced by a new theory with its own research program.

Let us consider how the premises of neo-institutionalism and classical old institutionalism influence the neoclassical research program.

3. Old and new institutionalism

“Old” institutionalism, as an economic movement, arose at the turn of the 19th and 20th centuries. He was closely connected with the historical direction in economic theory, with the so-called historical and new historical school (F. List, G. Schmoler, L. Bretano, K. Bücher). From the very beginning of its development, institutionalism was characterized by upholding the idea of ​​social control and intervention of society, mainly the state, in economic processes. This was the legacy of the historical school, whose representatives not only denied the existence of stable deterministic connections and laws in the economy, but were also supporters of the idea that the welfare of society can be achieved on the basis of strict state regulation of the nationalist economy.

The most prominent representatives of “Old Institutionalism” are: Thorstein Veblen, John Commons, Wesley Mitchell, John Galbraith. Despite the significant range of problems covered in the works of these economists, they were unable to form their own unified research program. As Coase noted, the work of American institutionalists came to nothing because they lacked a theory to organize the mass of descriptive material.

Old institutionalism criticized the provisions that constitute the “hard core of neoclassicalism.” In particular, Veblen rejected the concept of rationality and the corresponding principle of maximization as fundamental in explaining the behavior of economic agents. The object of analysis is institutions, not human interactions in space with the restrictions that are set by institutions.

Also, the works of old institutionalists are distinguished by significant interdisciplinarity, being, in fact, continuations of sociological, legal, and statistical research in their application to economic problems.

The predecessors of neo-institutionalism are the economists of the Austrian School, in particular Carl Menger and Friedrich von Hayek, who introduced the evolutionary method into economic science, and also raised the question of the synthesis of many sciences studying society.

Modern neo-institutionalism has its roots in the pioneering works of Ronald Coase, The Nature of the Firm, and The Problem of Social Cost.

The neo-institutionalists attacked first of all the provisions of neoclassicism, which constitute its defensive core.

1) First, the premise that exchange occurs without costs has been criticized. Criticism of this position can be found in Coase's early works. Although, it should be noted that Menger wrote about the possibility of the existence of exchange costs and their influence on the decisions of exchanging subjects in his “Foundations of Political Economy”.

Economic exchange occurs only when each participant, carrying out an act of exchange, receives some increase in value to the value of the existing set of goods. This is proven by Carl Menger in his work “Foundations of Political Economy”, based on the assumption of the existence of two participants in the exchange. The first has good A, which has a value W, and the second has good B with the same value W. As a result of the exchange that occurred between them, the value of goods at the disposal of the first will be W+ x, and the second - W+ y. From this we can conclude that during the exchange process, the value of the good for each participant increased by a certain amount. This example shows that exchange activities are not a waste of time and resources, but productive activity as the production of material goods.

When exploring exchange, one cannot help but dwell on the limits of exchange. The exchange will take place until the value of the goods at the disposal of each participant in the exchange will, according to his estimates, be less than the value of those goods that can be obtained as a result of the exchange. This thesis is true for all exchange counterparties. Using the symbolism of the above example, the exchange occurs if W(A) 0 and y > 0.

So far we have considered exchange as a process that occurs without costs. But in a real economy, any act of exchange is associated with certain costs. Such exchange costs are called transaction costs. They are usually interpreted as “the costs of collecting and processing information, the costs of negotiations and decision-making, the costs of monitoring and legal protection of the execution of the contract.”

The concept of transaction costs contradicts the thesis of neoclassical theory that the costs of functioning of the market mechanism are equal to zero. This assumption made it possible not to take into account the influence of various institutions in the economic analysis. Therefore, if transaction costs are positive, it is necessary to take into account the influence of economic and social institutions on the functioning of the economic system.

2) Secondly, recognizing the existence of transaction costs, there is a need to revise the thesis about the availability of information. Recognition of the thesis about the incompleteness and imperfection of information opens up new prospects for economic analysis, for example, in contract research.

3) Thirdly, the thesis about the neutrality of the distribution and specification of property rights was revised. Research in this direction served as a starting point for the development of such areas of institutionalism as the theory of property rights and economics of organizations. Within the framework of these directions, subjects of economic activity “economic organizations have ceased to be viewed as “black boxes”.

Within the framework of “modern” institutionalism, attempts are also being made to modify or even change the elements of the hard core of neoclassics. First of all, this is the neoclassical premise of rational choice. In institutional economics, classical rationality is modified by accepting assumptions of bounded rationality and opportunistic behavior.

Despite the differences, almost all representatives of neo-institutionalism view institutions through their influence on the decisions made by economic agents. The following fundamental tools related to the human model are used: methodological individualism, utility maximization, bounded rationality and opportunistic behavior.

Some representatives of modern institutionalism go even further and question the very premise of the utility-maximizing behavior of economic man, proposing its replacement by the principle of satisfaction. In accordance with the classification of Tran Eggertsson, representatives of this direction form their own direction in institutionalism - New Institutional Economics, the representatives of which can be considered O. Williamson and G. Simon. Thus, the distinction between neo-institutionalism and new institutional economics can be drawn depending on which premises are replaced or modified within their framework - the “hard core” or the “protective belt”.

The main representatives of neo-institutionalism are: R. Coase, O. Williamson, D. North, A. Alchian, Simon G., L. Thévenot, Menard K., Buchanan J., Olson M., R. Posner, G. Demsetz, S. Pejovic, T. Eggertsson et al.

4. Main trends of modern neo-institutionalism

Currently, the ideas of the concept of neo-institutionalism underlie many branches of economic knowledge. Let us briefly name and characterize the main ones:

1) The theory of property rights. Its founders are A. Alchian, R. Coase, J. Bartzel, L. de Alesi, G. Demsets, R. Posner, S. Pejovic, O. Williamson, E. Fyurobotn.

The central concept in property rights theory is the “right of property” itself.

“Property rights are understood as sanctioned behavioral relations between people that arise in connection with the existence of goods and concern their use. These relationships define norms of behavior regarding goods that any person must observe in his interactions with other people or bear costs due to non-compliance. It covers powers both over material objects and over human rights (the right to vote, print, etc.).

The prevailing system of property rights in society is, in this case, the sum of economic and social relations regarding rare resources, entering into which individual members of society oppose each other. (Pejović, Fyurobotn).

From the point of view of society, property rights act as rules of the game that regulate relations between individual agents.

From the point of view of an individual, property rights act as bundles of powers to make decisions regarding a particular resource.

To realize his various goals, the individual exercises control over a bundle of property rights that belongs exclusively to him. In the literature on the theory of property rights, the classification of A. Honoré is most widespread. It includes:

1. Ownership, i.e. exclusive physical control over a thing.

2. The right to use, i.e. personal use of a thing.

3. The right to control, i.e., to decide how and by whom a thing can be used.

4. Right to income, i.e. for benefits arising from previous personal use of a thing or from allowing other persons to use it (in other words, the right of appropriation).

5. The right to the capital value of a thing, implying the right to alienate, consume, squander, change or destroy the thing.

6. Right to security, i.e. immunity from expropriation.

7. The right to transfer things by inheritance or by will.

8. Right to perpetuity.

9. Prohibition of harmful use, i.e. the duty to refrain from using a thing in a way that is harmful to others.

10. The right to liability in the form of recovery, i.e. the possibility of taking away an item in payment of a debt.

11. The right to a residual nature, i.e. the expectation of “the natural return of the powers transferred to someone after the expiration of the transfer period or in the event of its loss for any other reason.”

Any act of exchange is considered as an exchange of bundles of property rights. The framework for the transfer of ownership rights is determined by the contract.

An important place in the theory of property rights is occupied by the problems of specification of property rights and the principal-agent relationship in various property systems.

2) Transaction cost theory. Main representatives: R. Coase and O. Williamson.

3) Theory of economic organizations. Main representatives: F. Knight, R. Coase, A. Alchian, G. Demsetz, O. Williamson, K. Menard.

Within the framework of this theory, a firm is viewed through the prism of a transactional approach, as a network of contracts, a system for processing and transmitting information, a structure for ensuring economic power and control over property, etc.

3) Economics of law. Representatives: R. Coase, R. Posner, G. Becker.

The conceptual framework of the economics of law can be presented as follows:

It assumes that agents behave as rational maximizers when making not only market but also non-market decisions (such as whether or not to break the law, whether or not to initiate a lawsuit, etc.).

The legal system, like the market, is seen as a mechanism that regulates the distribution of limited resources. Say, in the case of theft, as in the case of sale, a valuable resource moves from one agent to another. The difference is that the market deals with voluntary transactions, and the legal system deals with forced transactions made without the consent of one of the parties. Many forced transactions arise in conditions where transaction costs are so high that voluntary transactions are impossible because of this. For example, car drivers cannot negotiate in advance with all pedestrians about compensation for possible injuries. Forced “transactions” include most civil offenses and criminal offenses.

However, despite their forced nature, such transactions are carried out at certain prices, which are imposed by the legal system. Such implicit prices include judicial injunctions, monetary compensation, and criminal penalties. Therefore, the apparatus of economic analysis turns out to be applicable not only to voluntary, but also to involuntary transactions.

In the economics of law, it is analyzed in detail how economic entities react to various legal regulations.

In the economics of law, the question is also analyzed: how legal norms themselves change under the influence of economic factors. The main premise of the analysis here is the thesis that the formation of legal institutions is guided by the principle of efficiency.

4) Public choice theory. Main representatives: J. Buchanan, G. Tulloch, K. Arrow, M. Olson, D. Muller.

Public choice theory analyzes the political mechanism for making macroeconomic decisions, in other words, the object of analysis here is “political markets”.

5) New economic history. Representatives: D. North, R. Vogel, J. Wallis.

This theory attempts to interpret the historical process in terms of the evolution of institutions, the theory of property rights and transaction costs.

Bibliography

To prepare this work, materials from the site http://ie.boom.ru/ were used

Smelser N. Sociology. M., 1994. P.79.

Rawls J. Theory of Justice Novosibirsk, 1995. pp. 61-62.

Veblen T. The Theory of the Leisure Class. M., 1984. S. 201-202.

North D. Institutions and economic growth: a historical introduction // Thesis. T.1. Issue 2. M., 1993. P.73.

Mises L. Socialism. M., 1995. P.28.

North D.C. Institutions, institutional change and economic performance. Cambridge, 1990. P. 107.

Eggertsson T. Economic behavior and institutions. Cambridge, 1990. P.5.

Lakatos I. Falsification and methodology of scientific research programs. M., 1995. pp. 79-89.

Coase R. Firm, market and law. M., 1993. P.9.

Kapelyushnikov R.I. Economic theory of property rights. M., 1990. pp. 11-12.

The course examines the basic concepts and patterns of modern neo-institutional economic theory. The inclusion of institutions allows you to expand the range of problems and tools for solving them in the economy. The course uses the results of the latest research by economists.

Topic 1. The subject of studying institutional economics and its place in modern economic theory (6 hours)

Institutional and neoclassical approach in building economic models. Old and new institutionalism.

Leading scientists are representatives of neo-institutional economic theory (R. Coase, O. Williamson, D. North, A. Alchian, G. Simon, K. Menard, Buchanan J., Olson M.,).

The concept of an institution. Economic institutions and their typology. Institutions and rules. Institutions, markets and organizations. Formal and informal institutions. The role of the state in the formation of institutions.

Topic 2. Models of human behavior in economic theory (8 hours)

Model of economic man in orthodox economics. Alternative models of economic man. Economic and sociological man.

The concept of rationality. Rational behavior. The principle of maximization. Maximizing satisfaction. The theory of rational choice and its characteristics. Decision theory in economic theory. Forms of rationality. Social motivation and rational behavior. Behavioral prerequisites for institutional analysis. Bounded rationality and opportunism.

Ethical standards and economic behavior. Formation and coordination of preferences. Ethics and value rationality. Evolution of the Institute of Economic Ethics.

Topic 3. Transaction costs (12 hours)

The concept of transaction costs. Transaction and transformation costs. Transaction costs and specification (erosion) of property rights. Coase theorem. Externalities and minimizing transaction costs. The influence of formal and informal rules on the dynamics of transaction costs.

Transaction costs and contractual relations. Classification of contracts. Legal and economic concepts contracts. Effective management contractual relations. Measuring the profitability of transactions.

Topic 4. Economics of organizations (12 hours)

Concept economic organization. Organization and uncertainty. Purpose of the organization. Organization and theory of groups. Small groups. Closed and open groups. Coherence and effectiveness of small groups.

Intercompany and intracompany organization. Modern concepts of the theory of the firm. Behavioral and management theories of the firm. Institutional mechanisms of intra-firm coordination. Institutional factors of industrial organization.

Control, economic power and organizational effectiveness. Selection procedures in organizational space. Motivation and behavior within economic organizations. Organization as an element of an information system. Distribution of information within the organization. Types of economic organizations.

Topic 5. Institutional structure of the economy (10 hours)

The concept of institutional structure. Evolution of institutions. Institutions in different economic orders. Institutional structure and institutional environment.

Transformation of institutional structure: the role of the state and evolutionary mechanisms. Institutions and efficiency of economic systems. Economics of experiments.

Features of a transition economy. Import of institutions. Institutional design. Formation of a market institutional structure in crisis conditions.

Power group theories. Monopoly and the economy of power groups. The formation of the transaction sector - difficulties and prospects.

Lecture 1. The subject of studying institutional economics and its place in modern economic theory

1. The concept of an institution. The role of institutions in the functioning of the economy
2. Institutionalism and neoclassical economics
3. Old and new institutionalism
4. Main trends of modern neo-institutionalism

1. The concept of institution. The role of institutions in the functioning of the economy

Let's start our study of institutions with the etymology of the word institute.

to institute (English) - establish, establish.

The concept of institution was borrowed by economists from the social sciences, in particular from sociology.

Institute called a set of roles and statuses designed to satisfy a specific need.

Definitions of institutions can also be found in works of political philosophy and social psychology. For example, the category of institution is one of the central ones in John Rawls’s work “A Theory of Justice.”

Under institutions I will understand a public system of rules that define office and position with associated rights and duties, powers and immunities, and the like. These rules specify certain forms of action as permissible and others as prohibited, and they punish certain actions and protect others when violence occurs. As examples, or more general social practices, we can cite games, rituals, courts and parliaments, markets and property systems.

In economic theory, the concept of institution was first included in analysis by Thorstein Veblen.

Institutes- this is, in fact, a common way of thinking with regard to the individual relations between society and the individual and the individual functions they perform; and the system of social life, which is made up of the totality of those acting at a certain time or at any moment in the development of any society, can, from the psychological side, be characterized in general terms as the prevailing spiritual position or the widespread idea of ​​\u200b\u200bthe way of life in society.

Veblen also understood institutions as:

• habitual ways of responding to stimuli;
• structure of the production or economic mechanism;
• the currently accepted system of social life.

Another founder of institutionalism, John Commons, defines institution as follows:

Institute– collective action to control, liberate and expand individual action.

Another classic of institutionalism, Wesley Mitchell, can find the following definition:

Institutes- dominant, and highly standardized, social habits.

Currently, within the framework of modern institutionalism, the most common interpretation of institutions is Douglas North’s:

Institutes- these are the rules, the mechanisms that ensure their implementation, and the norms of behavior that structure repeated interactions between people.

The economic actions of an individual take place not in an isolated space, but in a certain society. And therefore it is of great importance how society will react to them. Thus, transactions that are acceptable and profitable in one place may not necessarily be viable even under similar conditions in another. An example of this is the restrictions imposed on human economic behavior by various religious cults.

In order to avoid the coordination of many external factors that influence success and the very possibility of making a particular decision, within the framework of economic and social orders, schemes or algorithms of behavior are developed that are the most effective under given conditions. These schemes and algorithms or matrices of individual behavior are nothing more than institutions.

2. Institutionalism and neoclassical economic theory

There are several reasons why neoclassical theory (early 60s) ceased to meet the requirements placed on it by economists who were trying to understand the real events in modern economic practice:

Now let us dwell on the basic premises of neoclassical theory, which constitute its paradigm (hard core), as well as the “protective belt”, following the methodology of science put forward by Imre Lakatos:

Hard core :

1. stable preferences that are endogenous;
2. rational choice (maximizing behavior);
3. equilibrium in the market and general equilibrium in all markets.

Protective belt:

1. Property rights remain unchanged and clearly defined;
2. The information is completely accessible and complete;
3. Individuals satisfy their needs through exchanges that occur without costs, taking into account the initial distribution.

A Lakatosian research program, while leaving the hard core intact, should be aimed at clarifying, developing existing ones, or putting forward new auxiliary hypotheses that form a protective belt around this core.

If the hard core is modified, then the theory is replaced by a new theory with its own research program.

Let us consider how the premises of neo-institutionalism and classical old institutionalism influence the neoclassical research program.

3. Old and new institutionalism

“Old” institutionalism, as an economic movement, arose at the turn of the 19th and 20th centuries. He was closely connected with the historical direction in economic theory, with the so-called historical and new historical school (F. List, G. Schmoler, L. Bretano, K. Bücher). From the very beginning of its development, institutionalism was characterized by upholding the idea of ​​social control and intervention of society, mainly the state, in economic processes. This was the legacy of the historical school, whose representatives not only denied the existence of stable deterministic connections and laws in the economy, but were also supporters of the idea that the welfare of society can be achieved on the basis of strict state regulation of the nationalist economy.

The most prominent representatives of “Old Institutionalism” are: Thorstein Veblen, John Commons, Wesley Mitchell, John Galbraith. Despite the significant range of problems covered in the works of these economists, they were unable to form their own unified research program. As Coase noted, the work of American institutionalists came to nothing because they lacked a theory to organize the mass of descriptive material.

Old institutionalism criticized the provisions that constitute the “hard core of neoclassicalism.” In particular, Veblen rejected the concept of rationality and the corresponding principle of maximization as fundamental in explaining the behavior of economic agents. The object of analysis is institutions, not human interactions in space with the restrictions that are set by institutions.

Also, the works of old institutionalists are distinguished by significant interdisciplinarity, being, in fact, continuations of sociological, legal, and statistical research in their application to economic problems.

The predecessors of neo-institutionalism are the economists of the Austrian School, in particular Carl Menger and Friedrich von Hayek, who introduced the evolutionary method into economic science, and also raised the question of the synthesis of many sciences studying society.

Modern neo-institutionalism has its roots in the pioneering works of Ronald Coase, The Nature of the Firm, and The Problem of Social Cost.

The neo-institutionalists attacked first of all the provisions of neoclassicism, which constitute its defensive core.

Within the framework of “modern” institutionalism, attempts are also being made to modify or even change the elements of the hard core of neoclassics. First of all, this is the neoclassical premise of rational choice. In institutional economics, classical rationality is modified by accepting assumptions of bounded rationality and opportunistic behavior.

Despite the differences, almost all representatives of neo-institutionalism view institutions through their influence on the decisions made by economic agents. The following fundamental tools related to the human model are used: methodological individualism, utility maximization, bounded rationality and opportunistic behavior.

Some representatives of modern institutionalism go even further and question the very premise of the utility-maximizing behavior of economic man, proposing its replacement by the principle of satisfaction. In accordance with the classification of Tran Eggertsson, representatives of this direction form their own direction in institutionalism - New Institutional Economics, the representatives of which can be considered O. Williamson and G. Simon. Thus, the distinction between neo-institutionalism and new institutional economics can be drawn depending on which premises are replaced or modified within their framework - the “hard core” or the “protective belt”.

The main representatives of neo-institutionalism are: R. Coase, O. Williamson, D. North, A. Alchian, Simon G., L. Thévenot, Menard K., Buchanan J., Olson M., R. Posner, G. Demsetz, S. Pejovic, T. Eggertsson et al.

4. Main trends of modern neo-institutionalism

Currently, the ideas of the concept of neo-institutionalism underlie many branches of economic knowledge. Let us briefly name and characterize the main ones:

1) The theory of property rights. Its founders are A. Alchian, R. Coase, J. Bartzel, L. de Alesi, G. Demsets, R. Posner, S. Pejovic, O. Williamson, E. Fyurobotn.

The central concept in property rights theory is the “right of property” itself.

“Property rights are understood as sanctioned behavioral relations between people that arise in connection with the existence of goods and concern their use. These relationships define norms of behavior regarding goods that any person must observe in his interactions with other people or bear costs due to non-compliance. It covers powers both over material objects and over human rights (the right to vote, print, etc.).

The prevailing system of property rights in society is, in this case, the sum of economic and social relations regarding rare resources, entering into which individual members of society oppose each other. (Pejović, Fyurobotn).

From the point of view of society, property rights act as rules of the game that regulate relations between individual agents.

From the point of view of an individual, property rights act as bundles of powers to make decisions regarding a particular resource.

To realize his various goals, the individual exercises control over a bundle of property rights that belongs exclusively to him. In the literature on the theory of property rights, the classification of A. Honoré is most widespread. It includes:

Any act of exchange is considered as an exchange of bundles of property rights. The framework for the transfer of ownership rights is determined by the contract.

An important place in the theory of property rights is occupied by the problems of specification of property rights and the principal-agent relationship in various property systems.

2) Transaction cost theory. Main representatives: R. Coase and O. Williamson.

3) Theory of economic organizations. Main representatives: F. Knight, R. Coase, A. Alchian, G. Demsetz, O. Williamson, K. Menard.

Within the framework of this theory, a firm is viewed through the prism of a transactional approach, as a network of contracts, a system for processing and transmitting information, a structure for ensuring economic power and control over property, etc.

3) Economics of law. Representatives: R. Coase, R. Posner, G. Becker.

The conceptual framework of the economics of law can be presented as follows:

It assumes that agents behave as rational maximizers when making not only market but also non-market decisions (such as whether or not to break the law, whether or not to initiate a lawsuit, etc.).

The legal system, like the market, is seen as a mechanism that regulates the distribution of limited resources. Say, in the case of theft, as in the case of sale, a valuable resource moves from one agent to another. The difference is that the market deals with voluntary transactions, and the legal system deals with forced transactions made without the consent of one of the parties. Many forced transactions arise in conditions where transaction costs are so high that voluntary transactions are impossible because of this. For example, car drivers cannot negotiate in advance with all pedestrians about compensation for possible injuries. Forced “transactions” include most civil offenses and criminal offenses.

However, despite their forced nature, such transactions are carried out at certain prices, which are imposed by the legal system. Such implicit prices include judicial injunctions, monetary compensation, and criminal penalties. Therefore, the apparatus of economic analysis turns out to be applicable not only to voluntary, but also to involuntary transactions.

In the economics of law, it is analyzed in detail how economic entities react to various legal regulations.

In the economics of law, the question is also analyzed: how legal norms themselves change under the influence of economic factors. The main premise of the analysis here is the thesis that the formation of legal institutions is guided by the principle of efficiency.

4) Public choice theory . Main representatives: J. Buchanan, G. Tulloch, K. Arrow, M. Olson, D. Muller.

Public choice theory analyzes the political mechanism for making macroeconomic decisions, in other words, the object of analysis here is “political markets”.

5) New economic history. Representatives: D. North, R. Vogel, J. Wallis.

This theory attempts to interpret the historical process in terms of the evolution of institutions, the theory of property rights and transaction costs.

Lecture 2. Models of human behavior in institutional economics

1. Model of economic man in orthodox economics
2. Rational behavior. Principle of rationality
3. Behavioral Prerequisites for Institutional Analysis
4. Institute of Business Ethics and Economic Behavior

1 . Model of economic man in orthodox economics

Since its inception as an independent field of knowledge, economic theory has used the model of economic man. The creation of such a model is due to the need to study the problem of choice and motivation in the economic activities of individuals. But as Simon rightly noted, the efforts of economists were aimed mainly at studying the results of choice in the economic sphere, and choice itself as a process fell out of the field of economic analysis: “neoclassical theory studies, in fact, not the process of choice, but its results.”

The attention of economists to the problem and mechanism of economic choice and the conditions mediating this choice led to a revision of the classical model of economic man within the framework of institutionalism.

But first, it is necessary to briefly consider the premises on which the neoclassical model of economic man is based.

In modern scientific literature, the acronym REMM is used to denote the economic man, which means "resourceful, evaluating, maximizing man." This model assumes that a person behaves completely rationally regarding the extraction of utility from economic goods. This provides the following conditions:

1. the information necessary to make a decision is fully available to the individual;
2. a person in his actions in the economic sphere is a complete egoist, that is, he is indifferent to how the well-being of other people will change as a result of his actions;
3. there are no external constraints on exchange (provided that exchange leads to utility maximization);
4. the desire to increase one's well-being is realized only in the form of economic exchange, and not in the form of seizure or theft.

Such assumptions have led to accusations against modern orthodox economics that it has become essentially “blackboard economics” and completely out of touch with real life.

But rationality is not all that determines the behavior of an economic agent. He does not exist separately from surrounding objects and agents like him, so it is necessary to consider the limitations that a person faces in the process of making a decision or making a choice.

The neoclassical theory here proceeds from the assumption that all consumers know what they want, that is, everyone has their own set of needs known to them, which are also functionally related. To simplify the analysis, neoclassicals took an “average” utility function, which does not take into account either the diversity of maximization opportunities at a constant income, or the differences between subjective aspirations to use available resources and objective opportunities. Therefore, since preferences are known, the solution to the utility function will be to determine the unknown outcomes of individual choice.

However, the value of a theory predicting the choice of a consumer or other economic entity will be high when the surrounding situation remains relatively stable, and the potentials inherent in it are available for acceptance and processing by human capabilities. Moreover, in addition to the above-mentioned external ones, there are also internal obstacles, from which the neoclassicists simply abstract.

Following the neoclassics, one can imagine a person as a perfect being, completely in control of himself and his own actions, that is, determining the latter by a single criterion - his own utility function. It also leaves aside the preferences of other subjects, which in a positive or negative sense can affect its decisions, and also assumes the absence of a relationship between the end and the means. One and the other are taken to be already known in advance and the possibility that when considering a chain of sequential actions the goal can become a means and vice versa is absent.

Thus, it can be noted that the absence of any prerequisites about the possibility of influence of the decisions of some people on the decisions of others separates the orthodox theory from the sociality of economic science.

According to Lindenberg, there are two types of sociological models of man. First (acronym SRSM) is a socialized person performing a role and a person who may be subject to sanctions. This is a person completely controlled by society. The goal is complete socialization. The process is directed by society - a person plays his role in it. Finally, the possibility of applying sanctions is control by society.

The second model (acronym OSAM) – a person who has his own opinion, is receptive, active. This person has an opinion regarding different aspects of the world around him. He is receptive, but acts according to his opinions. But he has nothing in common with economic man, because... it lacks ingenuity and limitations.

Comparing these two models, one can see that economic man concentrates in himself the most characteristic features of human behavior in the process of everyday market activity. Although these features are far from the only ones.

A sociological person transfers the characteristics of his behavior to his own behavior: society is not really an actor, it is the result of individual actions and interactions of people. That's why modern sciences, associated with society, gravitate towards the model of economic man, leaving him with the behavioral validity of many phenomena, while the sociological model does not represent anything concrete, relying on the unstable relationship between man and society.

2. Rational behavior. Principle of rationality

The concept of rationality is as complex for scientific analysis as it seems simple from the point of view of ordinary consciousness.

Rationality can be defined as follows: a subject (1) will never choose alternative X if at the same time (2) alternative Y is available to him, which from his point of view (3) is preferable to X.

According to Hayek, rational behavior can be called a type of behavior that is “aimed at obtaining strictly defined results.” It is noted that the theory of rational choice explains only normal people's behavior. The only thing left to do is to investigate what the norm is in economic reality.

In economic theory, the following two main models of rational behavior are used:

1. Rationality (as such);
2. Following your interests.

Let's take a closer look at these models:

1. Rationality

According to O. Williamson, there are 3 main forms of rationality:

Forms of organic and bounded rationality complement each other, but are used differently to achieve different goals, although the study of institutions as ways to reduce transaction costs by neo-institutionalists and the clarification of the viability of institutions by the Austrian school are closely related.

2. Focus on self-interest

3. Behavioral prerequisites for institutional analysis

First of all, the possibility of abstracting from the system of preferences that is formed within a person was raised as a big question. This is a system of values, goals, behavioral stereotypes, habits of individuals, psychological and religious types, which directly indicates that the individual makes his own choice. That is, institutionalists determine rather the nature of the situation in which the choice is made, rather than considering the result obtained within the framework of the interaction of many people. Therefore, this approach involves the inclusion of a historical aspect that looks at the evolution of a person attached to a specific culture, society, group and existing at a certain time.

The next feature of institutional theory follows from the previous one: since the assumption about the exogeneity of the system of restrictions is incorrect, then, therefore, if a person does not have the full amount of information necessary for free orientation in the world around him, then he is not able to fully reflect the processes of individual and social life. Then how can one trace the process of selecting reality and their decoding as a prerequisite for making a choice?

To address these issues within the framework of modern neo-institutional economics, two behavioral premises are used - bounded rationality and opportunism.

Ethical standards in many cases are more effective in reducing transaction costs than formal rules of law. In fact, traditional norms of behavior in society determine a significant amount of costs

The system of traditions, moral and ethical standards of economic behavior is not something given and unchangeable. Throughout evolution human civilization Each stage of its development corresponded to certain norms of behavior.

In the conditions of a primitive society, these norms contributed to the emergence of rules of behavior that cultivated collectivism, subordination to the leader of the tribe, and a certain division of rights and responsibilities within the tribe. Subsequently, during the transition from a tribal and nomadic way of life to a sedentary one, with the development of a deepening division of labor and the emergence of trade, property rights are assigned to specific individuals. Exchange increases both within groups and between groups of people.

Moralrules of behavior are changing: To congenital moral rules based on instincts (solidarity, altruism, group decision-making) are added benefit acquired. Hayek wrote about this: “... There are acquired rules (thrift, respect for property, honesty, etc.) that created and maintain the extended order... The extended order depends on this morality, it arose due to the fact that groups that followed its basic rules outstripped others in increasing numbers and wealth." It was these acquired institutions, maintaining and evolving, that allowed the emergence of modern civilization, based on economic and social exchange between people and between states. On the basis of such rules of behavior, legal norms arose and systems of law were formed that promote and facilitate exchange.

But the development of traditions, . History provides many examples of “closed” societies or totalitarian states that base their economic and social systems not on the market mechanism and freedom, but on coercion and compliance. higher goals and plans that are known only to a tyrant, dictator, leader or some other supreme authority.

Thus, the magnitude of the costs of market transactions depends not only on the legal norms regulating the rules for concluding transactions or guaranteeing the security of property rights, but equally on the traditions of the market behavior of the exchange counterparties. If in society there are no moral rules of respect for property rights and honesty in observing contracts, then control by the law (even the most perfect) will not significantly reduce transaction costs, both average and absolute. This is clearly visible in a transition economy. During transformation processes, relations between subjects of an emerging market develop faster than traditional norms of behavior inherent in the market order are created. Therefore, transaction costs, even with the creation of an ideal legal system, will remain quite high for a relatively long time until the population is instilled with new ethical rules characteristic of an expanded order.

Under centralized planning, transaction costs do not exist at all, since there is no market exchange mechanism. However, there was a shadow market in which a certain part of the population was occupied, and the majority of the population somehow encountered it in an era of general shortage. In the shadow market, transaction costs were extremely high because the exchange took place within an illegal framework. Under the influence of this situation, people closely associated with the “black” market formed unique moral and ethical standards that govern their behavior. Following this ethics of the shadow economy made it possible to achieve success. These norms of economic behavior were based on legal nihilism, since under real socialism production or trade outside the framework of state institutions was illegal. With the transition of the economy to a market path of development, the “black” market was legalized. But in the new conditions, its agents cannot immediately change the rules of their behavior; in market conditions, they continued to violate legal norms regulating economic activity. Such behavior is opportunistic and, therefore, sharply increases the costs of functioning of the economic system.

Ethical institutions are not the product of the purposeful activity of an individual or group of individuals. They are formed as a result of evolutionary cultural selection. ] Individuals, when making decisions in the process of economic activity, take into account those restrictions that are determined by established and accepted as traditional behavior matrices. Ignoring the ethical norms dominant in society, it is difficult for an individual to count on the success of his business.

But the most important thing is that, acting in accordance with the rules that have been established as a result of evolutionary selection, the subject of economic activity uses more information about the acceptability of his actions than he can receive and comprehend, guided only by rationality. It is no coincidence that Hayek notes on this matter: “Rationalism can be fallible, and traditional morality can in some respects provide a truer guide to human action than rational knowledge.”

Moral norms influence the process of formation of subjective mental constructs in an individual. Douglas North emphasizes that "the subjective mental constructs by which individuals process information lead to decisions that determine the individual's choices." Having different ways of perceiving (mentality) of economic phenomena, individuals in similar economic situations make different decisions. “The mental constructions of players, set by the complexity of the surrounding world, limited information feedback from the results of activities, inherited cultural traditions, determine their perception.” Consequently, the success of market reforms largely depends on changes in the mentality of the population.

Lecture 3. Transaction costs

1. Concept and types of transactions
2. The concept of transaction costs
3. Transaction costs and specification (erosion) of property rights
4. Externalities are transaction costs. Coase theorem.
5. Transaction costs and contractual relationships

1. Concept and types of transactions

The concept of transaction was first introduced into scientific circulation by J. Commons.

Transaction– this is not an exchange of goods, but the alienation and appropriation of property rights and freedoms created by society. This definition makes sense (Commons) due to the fact that institutions ensure the extension of the will of an individual beyond the area within which he can influence the environment directly through his actions, that is, beyond physical control, and therefore are trans- shares as opposed to individual behavior as such or the exchange of goods.

Commons distinguished three main types of transactions:

1. Deal transaction– serves to carry out the actual alienation and appropriation of property rights and freedoms, and its implementation requires mutual consent of the parties, based on the economic interest of each of them.
   In the transaction, the condition of symmetrical relations between counterparties is observed. The distinctive feature of a transaction, according to Commons, is not production, but the transfer of goods from hand to hand.
2. Control transaction– the key in it is the relationship of management of subordination, which involves such interaction between people when the right to make decisions belongs to only one party. In a management transaction, behavior is clearly asymmetrical, which is a consequence of the asymmetry of the position of the parties and, accordingly, the asymmetry of legal relations.
3. Rationing transaction– it preserves the asymmetry of the legal status of the parties, but the place of the managing party is taken by a collective body that performs the function of specifying rights. Rationing transactions include: drawing up the company’s budget by the board of directors, federal budget government and approval by a representative body, a decision of an arbitration court regarding a dispute arising between acting entities through which wealth is distributed. There is no control in the rationing transaction. Through such a transaction, wealth is allocated to one or another economic agent.

The presence of transaction costs makes certain types of transactions more or less economical depending on the circumstances of time and place. Therefore, the same operations can be mediated by different types of transactions depending on the rules that they order.

2. The concept of transaction costs

Criticism of the position of neoclassical theory that exchange occurs without costs served as the basis for introducing a new concept into economic analysis - transaction costs.

The concept of transaction costs was introduced by R. Coase in the 30s in his article “The Nature of the Firm.” It has been used to explain the existence of hierarchical structures that are antithetical to the market, such as the firm. R. Coase associated the formation of these “islands of consciousness” with their relative advantages in terms of saving on transaction costs. He saw the specifics of the company's functioning in the suppression of the price mechanism and its replacement with a system of internal administrative control.

Within the framework of modern economic theory, transaction costs have received many interpretations, sometimes diametrically opposed.

So K. Arrow defines transaction costs as operating costs economic system. Arrow compared the effect of transaction costs in economics with the effect of friction in physics. Based on such assumptions, conclusions are drawn that the closer an economy is to the Walrasian general equilibrium model, the lower its level of transaction costs, and vice versa.

In D. North’s interpretation, transaction costs “consist of evaluation costs useful properties the object of exchange and the costs of ensuring rights and enforcing their observance.” These costs inform social, political, and economic institutions.

In the theories of some economists, transaction costs exist not only in a market economy (Coase, Arrow, North), but also in alternative methods of economic organization and in particular in a planned economy (S. Chang, A. Alchian, Demsetz). So, according to Chang, maximum transaction costs are observed in a planned economy, which ultimately determines its inefficiency.

2. Typology of transaction costs Transaction and transformation costs

In the economic literature there are many classifications and typologies of transaction costs. The most common typology is the following, which includes five types of transaction costs:

1. Costs of searching for information. Before a transaction is made or a contract is concluded, you need to have information about where you can find potential buyers and sellers of the relevant goods and factors of production, and what the current prices are. Costs of this kind consist of the time and resources required to conduct the search, as well as losses associated with the incompleteness and imperfection of the acquired information.
2. Negotiation costs. The market requires the diversion of significant funds for negotiations on the terms of exchange, for the conclusion and execution of contracts. The main tool for saving this kind of costs is standard (standard) contracts.
3. Measurement costs. Any product or service is a set of characteristics. In the act of exchange, only some of them are inevitably taken into account, and the accuracy of their assessment (measurement) can be extremely approximate. Sometimes the qualities of a product of interest are generally immeasurable and to evaluate them one has to use surrogates (for example, judging the taste of apples by their color). This includes the costs of related measuring technology, to carry out the measurement itself, to implement measures aimed at protecting the parties from measurement errors and, finally, losses from these errors. Measurement costs increase with increasing accuracy requirements.
   Enormous savings in measurement costs have been achieved by mankind as a result of the invention of standards for weights and measures. In addition, the goal of saving these costs is determined by such forms of business practices as warranty repairs, branded labels, purchasing batches of goods based on samples, etc.
4. Costs of specification and protection of property rights. This category includes the costs of maintaining courts, arbitration, government agencies, the cost of time and resources6 necessary to restore violated rights, as well as losses from their poor specification and unreliable protection. Some authors (D. North) add here the costs of maintaining a consensus ideology in society, since educating members of society in the spirit of observing generally accepted unwritten rules and ethical standards is a much more economical way to protect property rights than formalized legal control.
5. Costs of opportunistic behavior. This is the most hidden and, from the point of view of economic theory, the most interesting element of transaction costs.

There are two main forms of opportunistic behavior. The first one wears Name moral hazard. Moral hazard occurs when one party to a contract relies on another party, and obtaining actual information about his behavior is costly or impossible. The most common type of opportunistic behavior of this kind is shirking, when an agent works with less efficiency than is required of him under the contract.

Particularly favorable conditions for shirking are created in conditions of joint work by a whole group. For example, how to highlight the personal contribution of each employee to the overall result of activities<команды>factory or government agency? We have to use surrogate measurements and, say, judge the productivity of many workers not by results, but by costs (such as labor time), but these indicators often turn out to be inaccurate.

If the personal contribution of each agent to the overall result is measured with large errors, then his reward will be weakly related to the actual efficiency of his work. Hence the negative incentives that encourage shirking.

In private firms and government agencies, special complex and expensive structures are created whose tasks include monitoring the behavior of agents, detecting cases of opportunism, imposing penalties, etc. Reducing the costs of opportunistic behavior is the main function of a significant part of the management apparatus of various organizations.

Second form opportunistic behavior - extortion. Opportunities for him appear when several production factors They work in close cooperation for a long time and get used to each other so much that everyone becomes indispensable and unique to the other members of the group. This means that if some factor decides to leave the group, then the remaining participants in the cooperation will not be able to find an equivalent replacement on the market and will suffer irreparable losses. Therefore, the owners of unique (in relation to a given group of participants) resources have the opportunity for blackmail in the form of a threat to leave the group. Even when<вымогательство>remains only a possibility, it always turns out to be associated with real losses (The most radical form of protection against extortion is the transformation of interdependent (interspecific) resources into jointly owned property, the integration of property in the form of a single bundle of powers for all team members).

The above classification is not the only one; for example, there is also a classification by K. Menard:

1. Isolation costs (same as 5 (shirking).
2. Information costs.
3. Costs of scale
4. Costs of behavior.

With the introduction of transaction costs into the analysis, it is necessary to clarify the firm's cost structure.

In a market economy, a company’s costs can be divided into three groups: 1) transformational, 2) organizational, 3) transactional.

Transformation costs- transformation costs physical properties products in the process of using production factors.

Organizational costs- costs of ensuring control and distribution of resources within the organization, as well as costs of minimizing opportunistic behavior within the organization.

Transaction and organizational costs are interrelated concepts; an increase in some leads to a decrease in others and vice versa.

In modern economic analysis, transaction costs have received operational application. Thus, in some studies, the impact of transaction costs on supply and demand is similar to the introduction of taxes.

Also, the use of transaction (TC) costs allows us to express through them the demand function for institutions when analyzing institutional equilibrium and institutional dynamics. The supply of institutions “in the institutional market” is the cost of collective action (CAC).

SAC is the marginal cost of creating institutions, TC expresses the marginal utility of institutions, expressed through their opportunity cost in the form of transaction costs.

3. Transaction costs and specification (erosion) of property rights

This problem is studied mainly within the framework of the modern theory of property rights. The main task of property rights theory is to analyze the interaction between economic and legal systems.

The theory of property rights is based on the following fundamental principles:

1. property rights determine what costs and rewards agents can expect for their actions;
2. restructuring of property rights leads to shifts in the system of economic incentives;
3. the reaction to these shifts will be the changed behavior of economic agents.

Property rights theory is based on the basic idea that any act of exchange there is essentially an exchange of bundles of powers.

According to Demsetz: “When a transaction occurs in the market, two bundles of property rights are exchanged. A bundle of rights is usually attached to a specific physical good or service, but it is the value of the rights that determines the value of the goods exchanged... Economists usually take the bundle of rights as given and seek an explanation of what determines the price and quantity of the commodity to be exchanged to which these rights relate.”

The wider the set of rights associated with a given resource, the higher its usefulness. Thus, an own thing and a rented thing have different utility for the consumer, even if physically they are completely identical.

Economic agents cannot transfer more powers in an exchange than they have. Therefore, the expansion or narrowing of their existing property rights will also lead to changes in the conditions and scale of exchange (an increase or decrease in the number of transactions in the economy).

As a starting point for analysis, Western theorists usually turn to the private property regime. They understand the right of private property not simply as an arithmetic sum of powers, but as a complex structure. Its individual components mutually determine each other. The degree of their interconnectedness is manifested in the extent to which the restriction of any power (up to its complete elimination) affects the implementation by the owner of other powers.

The high degree of exclusivity inherent in private property has two behavioral consequences:

1. exclusivity of right (usus fructus) presupposes that the owner and only him bears all the positive and negative results of his activities. He therefore turns out to be interested in taking them into account as completely as possible when making decisions;
2. the exclusivity of the right of alienation means that in the process of exchange the thing will be transferred to the economic agent who offers the highest price for it, and thus an efficient distribution of resources in the economy will be achieved.

Western economists' defense of the private property system rests precisely on these efficiency arguments. They consider the precise definition of the content of property rights to be the most important condition for the effective functioning of the economy.

Excluding others from free access to a resource means specify ownership rights to it.

Contributes to the creation of a stable economic environment by reducing uncertainty and creating stable expectations among individuals about what they can get from their actions and what they can expect in their relationships with other economic agents. Specify ownership means to accurately determine not only the subject of property, but also its object, as well as the method of vesting it.

Incomplete specification is interpreted as blurring(attenuation) of property rights. The meaning of this phenomenon can be expressed by the phrase - “no one will sow if the harvest goes to someone else.”

Erosion of property rights may occur either because they are poorly defined and poorly protected, or because they are subject to various kinds of restrictions, mainly from the state.

Since any restrictions rearrange the expectations of an economic agent, reduce the value of a resource for him, and change the terms of exchange, the actions of the state are a priori suspect among property rights theorists.

It is necessary to distinguish between the processes of differentiation (splitting) and erosion of property rights. The voluntary and bilateral nature of the splitting of powers guarantees in their eyes that it will be carried out in accordance with the criterion of efficiency. The main benefit from the dispersal of powers is seen in the fact that economic agents have the opportunity to specialize in the implementation of one or another partial power, which increases the efficiency of their use (for example, the right to manage or the right to dispose of the capital value of a resource).

In contrast, the unilateral and coercive nature of the restriction of property rights by the state does not provide any guarantee of its compliance with the criteria of effectiveness. Indeed, such restrictions are often imposed in the selfish interests of various lobby groups.

In reality, it is very difficult to separate the processes of splitting from the processes of erosion of property rights, therefore, an economic analysis of the problem of erosion of property rights does not mean a call for a precise definition of all rights to all resources at any cost.

Property Rights Specification, from the point of view of economic theory, should go to the limit where further gains from overcoming them blur will no longer cover the associated costs.

The problem of specification of property rights and the influence of transaction costs on this process is considered in the “Property Theorem”.

4. External effects - transaction costs. Coase theorem

The Coase theorem has many interpretations in modern scientific literature, half of which R. Coase himself would hardly agree with.

First, let's briefly look at the range of problems and concepts that appear in the Coase theorem.

External effects(externalities) - additional costs or benefits that are not reflected in prices.

Positive external effects arise when the activities of some economic entities leads to the emergence of additional benefits for other entities, and this is not reflected in the prices of the goods produced.

Negative external effects arise when the activities of some economic entities cause additional costs for others.

Traditionally, in neoclassical theory, the problem of externalities was associated with “market failures,” which justified government intervention, and was solved with the help of a “Pigou tax.”

The "Pigouvian tax" must be equal to MEC, then MSB = MSC.

Coase proposed an original hypothesis, following which negative externalities can be internalized through the exchange of property rights to objects that generate externalities, provided that these rights are clearly defined and the costs of exchange are insignificant. And as a result of such an exchange, the market mechanism will lead the parties to an effective agreement, which is characterized by equality of private and social costs.

Difficulties in implementing the provisions of this theorem lie in: 1) a clear definition of property rights; 2) high transaction costs.

The most common is the formulation of the Coase theorem given by George Stigler: “under conditions of perfect competition (at zero transaction costs, since in this case monopolies will be forced to act as competitive firms V.V.) private and social costs will be equal.”

Coase's formulation is somewhat different: the delimitation of rights (V.V.'s property) is an essential prerequisite for market transactions... the end result (which maximizes the value of production) is independent of the legal decision (V.V. only) under the assumption of zero transaction costs.

Coase emphasized that Stigler did not take into account when formulating the theorem that if private and social costs are equal, the value of production will be maximized. This is obvious if we accept the following interpretation of social costs that Coase gives.

« Social costs represent the highest value that the factors of production can bring in their alternative uses.” But any entrepreneur will begin production in the case when his private costs are less than the value of the product produced with the help of attracted factors. Therefore, equality of social and private costs implies maximization of production value.

Sometimes, based on this theorem, it is erroneously concluded that the “Coasian world” is a world with zero transaction costs. In reality this is not the case.

Coase, on the contrary, with his theorem shows the importance of transaction costs for the economic analysis of “actually occurring events.”

“In a world with zero transaction costs, the value of production will be maximized under any liability rules.” In other words, at zero transaction costs, legal rules are irrelevant for maximization.

“With non-zero transaction costs, the law plays a key role in determining how resources are used... Making all or part of the changes (leading to maximizing V.V. production) in contracts turns out to be too expensive. The incentive to take some steps that would maximize production disappears. The law determines what incentives will be lacking because it determines exactly how contracts need to be changed to achieve those actions that maximize the value of production.”

This results in a paradoxical situation: in cases of “market failure,” we de facto recognize the existence of positive transaction costs, otherwise the market would automatically lead to a state of optimality, ensuring the maximization of production value.

5. Transaction costs and contractual relations

As already noted in the lecture, the formation of a company saves on overall costs by transforming the transaction costs of independent agents on the open market into organizational ones within the company. Therefore, to analyze the nature of the company, it was necessary to expand the content of the concept of contract (transaction) far beyond the scope of a single purchase and sale agreement. Thus, it became possible to interpret the nature of the company as a problem of choosing the optimal form of contract. The variety of contractual provisions is derived from the variety of transaction costs.

The problem of contracts and associated transaction costs is based on the formation of formal and informal rules that reduce these costs (or vice versa increase). The source of rules is society, then they descend to the level of property rights and then to the level of individual contracts.

Contracts reflect a structure of incentives and disincentives rooted in the structure of property rights and the mechanisms for enforcing them. Thus, the range of options open to players, and the forms of organizations they create when entering into specific contracts, stem from the structure of property rights.

Economic practice has developed three main types of contracts, each of which has its own primary area of ​​application.

1. Classic contract. A classic contract is impersonal in nature, and its distinguishing feature is the presence of clearly stated clauses (“if,...then”). Therefore, all possible future events are reduced to the present moment. In a classic contract, the identity of the counterparty does not matter - anyone can be a participant. The classical contract tends towards standardization. The written terms of the transaction take precedence over oral ones; the main emphasis is on formal documents. Once the transaction is completed, it ceases to exist. The contract is two-sided: sanctions for violation of contract sanctions are clearly specified and all disputes regarding it are resolved in court.
2. Neoclassical contract. This is a long-term contract in conditions of uncertainty. Not all future events can be specified as conditions when signing it. Optimal adaptation to some events cannot be predicted until they occur. Therefore, the parties to such a contract agree to involve a third party, whose decision they undertake to comply with in the event of the occurrence of events not specified in the contract, so the contract acquires a tripartite character. Disputes regarding it are resolved not by the court, but by arbitration bodies.
3. Relational (or obligatory) contract. Such contracts are formed in conditions of long-term, complex, mutually beneficial relationships between the parties. Mutual interest in continuing the relationship plays a decisive role here. The discrete nature of relationships inherent in the two previous forms of contracts completely disappears here - the relationship becomes continuous. Informal terms outweigh formal clauses; sometimes the contract is not drawn up as a document at all. The personality of the participants here becomes crucial. Therefore, disputes are resolved not by appealing to the formal law or the authority of an arbitrator, but through informal negotiations and bilateral bargaining. The norm to which the parties refer is therefore not the original contract, but the entire relationship as a whole.

Each contract form has a specific mechanism for managing contractual relations:

1. Impersonal market mechanism. Approaches one-time and recurring transactions for standard items.
2. Arbitration. Applies to irregular transactions for goods of medium and high specificity.
3. Two-way management structure. This type is typical for relational contracts. The scope of application of this control mechanism is regular transactions regarding goods of medium specificity.
4. Unitary management (hierarchy). Relations between contracting parties are governed by direct commands and orders, rather than by market signals.

Participants in transactions, replacing classical market exchange with more complex forms of contracting (including non-market methods of economic coordination), on the one hand, strive for monopolization and the implementation of monopoly goals, on the other, the desire to minimize relevant costs (monopolistic efficiency approaches to contracts).

North D. Institutions, institutional changes and the functioning of the economy. M., 1997. P.45.

Lecture 1

SUBJECT, OBJECT,

METHOD AND DIRECTIONS

RESEARCH WITHIN

INSTITUTIONAL ECONOMY

Methodological background

emergence of institutional analysis

Society and man as its central element exist in the surrounding world on the general rights of material adaptation: they are viable to that extent, i.e. they know how to preserve themselves, their essence for a long time, in which they are able to withstand the influence, pressure of interactions with external conditions of existence.

The only difference in human existence is the ability to set goals, the presence of consciousness and creative abilities. The application of these abilities to the world around us provides a flow of vital information. The entire process of human adaptation is based on the processing of this information. Therefore, the development of any phenomenon is associated with information processing processes, which only a person can do. Thus, the essence of the subjective factor lies in the organization of the adaptation process, the development social phenomena.

But the intellectual abilities of a person and the entire society as a whole are always naturally limited, therefore the question always and everywhere arises of organizing an effective mechanism for their distribution, use and production. This mechanism is created through the implementation of the institution. The implementation of the subjective factor in relation to any phenomenon and field of activity occurs in the presence of an institution for its development, a certain institutional environment.

That's why concept of institution as a condition for the effective implementation of human subjectivity, as a prerequisite for high-quality processing of reproductively significant information, is international for science as a whole. That is why they talk about the institution of marriage, political institutions, economic institutions, etc., i.e. the presence of those conditions that allow them to develop and persist even under the most unfavorable external conditions. This applies to all aspects of life, each of which is based on some basic relationships that give the information functioning in this area a full reproductive, systemic character.

Three conclusions follow from the above:

Psychological abilities are a rare resource, including an economic one;

The use and production of this resource is organized through institutions;

The phenomenon of any sphere of life, including the economic one, should be analyzed taking into account the principle of completeness of all reproductive information and the importance for its development of the action of the subjective factor of the economy (an intellectual resource that controls the institution).

Almost all modern scientific and educational literature assumes that institutionalism is a new research paradigm that significantly changes, if not the core, then the shell of classical political economy. The core is understood as a number of axioms, basic theoretical principles underlying marginal (marginal) analysis, primarily the rationality of economic activity aimed at maximizing the satisfaction of material needs, efficient use resources. Shell - a series of assumptions that ensure the clear functioning of the created theoretical model, for example absolute freedom movements and completeness of information possession by business entities. However, this is not entirely true; we need to remember that K. Marx also pointed out that there are two sides to the content of any economic relations - organizational-economic and socio-economic. Moreover, if the latter of them is determined directly from the communication of people regarding the production, distribution, exchange and consumption of material goods and is the result of the interaction of their economic interests, then the first is a production technology, the organization of the process of this communication itself.

However, K. Marx believed that the organizational-economic side is not significant for political economic research, since it does not determine the nature of production relations arising from the dominant method of combining factors of material production. Since your practical problem he saw in explaining the need for the existence of a mechanism of forced labor under certain historical conditions of its material content and the social level of its division, and more specifically in describing the mechanism of “exploitation” in the conditions of capitalist production, based on the use of machines and the “purchase and sale” of labor power, then his opinion can be considered quite justified; he really could afford to abstract himself from the second (organizational) side of the functioning of industrial relations, without raising the question of achieving the maximum level of efficiency of this mechanism.

At the same time, marginalism (marginal analysis) never raised the question of the dual nature of production relations, since, in contrast to Marxism, it initially concentrated not on the qualitative nature and possible variety of forms of economic interactions in the process of reproduction of material goods, but on their quantitative side, the effectiveness of this issue . He was only interested in the possibility of achieving maximum effective use material resources in some ideal market economy. In this case, the variety of possibilities for organizing market interactions, forms of organizing production and consumption not only falls out of the field of view of researchers, but also becomes a seditious idea that undermines the purity of the bright image of a private capitalist economy.

However, in practice it turned out that “institutions (in this case, mechanisms, ways of organizing economic interactions) matter” 1 and their presence is primarily reflected in the general and individual level of economic efficiency of business. In this sense, their action is manifested and often compared with the process of friction in physical systems, which limits the purity of the action of general physical laws, primarily the laws of motion. And now it is quite obvious to economists that in order to create a picture of a really functioning economy, this frictional force must be taken into account, and accordingly, it is necessary to turn to the study of possibilities, the need for existence and competition qualitatively in various ways(forms) of management and market interaction that arise on the basis of certain levels of transaction costs, costs of organizing economic interaction (for example, the pace of development of our country and China or individual firms (oil company Lukoil and a private company)).

Based on all that has been said subject of study of institutional economics, as well as classical economic theory, is the economic behavior of a person participating in social material reproduction with the aim of maximizing the satisfaction of his final needs.

1 Yaort D. Institutions, institutional changes and the functioning of the economy. - M., 1997.

ties, given the limited nature of the resources used in the economy, including intellectual abilities. She also tries to formulate general laws economic development countries and peoples, but transforms them into stable rules of conduct for leading economic entities in certain historical conditions and considers these laws not only as objective, independent of the will and consciousness of people, but also as a result of expediently organized economic communication, a certain normative result of the subjective activity of people in areas of management.

However, we note that if classical political economy, when analyzing the subject, relies primarily on the study of the role of property relations (primarily the means of production) to create labor motivation and ensure its inevitability at any level of development of productive forces, then institutionalism emphasizes that the level of this motivation and labor efficiency, even under the same material conditions of production, can be different and depend on different ways of organizing economic communication. In this sense, the chosen forms of ownership inevitably determine the amount of value created.

However, it is also true that traditional marginalism, when analyzing the subject of research, affirms the primacy of value relations in the process of organizing the development of material production, emphasizes the role of the effective distribution and use of economic resources in a market economy, based on the right of private property, but without taking into account the diversity of its forms. Therefore, institutionalism indicates that the existence of a market economy is not only impossible without the implementation of private ownership of the results of labor and the exchange of these rights between business entities, but its effectiveness directly depends on the specific content of property rights. In this sense, the development of the market and the requirement for growth in its efficiency predetermine the development of content and the movement of property rights. For example, under planned socialism, all resources belong to the state (including labor), hence the distribution of specialists, the achieved result is the absence of unemployment.

Thus, institutional economics establishes some methodological balance in the study of the subject of economic science from the point of view of the interaction of two system-forming, leading economic relations - relations of property and value. It seeks and creates a common methodological basis for combining marginal analysis and political economy (the marginal and historical aspects of economic development) and at the same time relies on the implementation of a general information approach to the study of social phenomena in economic research.

What do we mean by this? To understand the informational certainty of economic development brought by institutional analysis, first of all, let us recall that value relations are understood as relations regarding the rational distribution of material goods and economic resources in space and time in relation to economic entities (the physical certainty of the existence of material goods). These relationships ensure production efficiency from the technological side: what, where, when and in what quantity should be located and how to use it to obtain maximum results.

And by property relations we mean relations regarding the appropriation and alienation of material goods by specific economic entities (the social certainty of the existence of goods, the method of appropriation). These relationships ensure the efficiency of production from the qualitative (motivational) side: whether the business entity is able, willing and has the right (under certain conditions) to use this item at its own discretion.

However, from a methodological point of view, as we noted above, it is obvious that both have equal importance for the organization of full-fledged human economic activity. Therefore, value relations and property relations are the general information coordinates of any economic activity. These relations are interconnected and function only in unity: as a rule, it is impossible to change the existing distribution of material goods without changing ownership of it, and a change in the conditions of appropriation always leads to a change in both the structure of production and the distribution of goods.

It should also be noted that the process of their interaction is not spontaneous or random, but is controlled by the person himself, changes according to the economic interests of society, social groups and the individual, and develops over time as the productive forces develop. Therefore, any economic communication is expedient and organized in space and time, i.e. is the sphere of implementation of specific institutional work associated with the general laws of human adaptation and the psychological processes of his processing of reproductively significant information.

These organizational relationships, which allow a person to exist according to his own social laws, different from nature, take place in any sphere of human life and differ only in the final goal, which for the economy is the efficient use of resources and the satisfaction of material needs (the operation of the law of saving time in the reproduction of material good).

In this case, the economic (reproductive) existence of material goods is, first of all, determined by the totality of relations of value and property that arise between people regarding them, and by the presence of institutional activities of people coordinating economic communication. For example, the ballpoint pens we use: each of them is economically determined by the purpose of use, by cost, by property, it is known what will happen to it after a certain time. From an economic point of view, this individuality is not always rational and socially effective, since relations of property and value do not arise and exist on their own, but are the result of expedient institutional activities of people coordinating their interests, labor activity and general economic development.

The very institutional activity of people (coordinating communication and setting the general goal of development), as we noted above, is built on the general adaptive laws of human existence and the psychological mechanism for processing reproductively significant information. Therefore, within the framework of institutionalism, any economic action is considered primarily as a product of psychological, mental activity, and psychological abilities for processing information and the available time for psychological activity are the main limited economic resources.

Thus, institutionalism tries to implement, apply knowledge about the general laws of cognition, organization creative activity and human adaptation in the surrounding world in a specific, namely economic, sphere of his life and economic theory. This is the essence of the information approach.

However, this approach to the study of economic phenomena has not yet found its full embodiment in economic theory, and modern institutional theory, which arose within the framework of classical marginal analysis and separated from it, is only approaching the understanding of its comprehensive methodological function and is used partially, only to remove the most “free” and not corresponding to reality theoretical assumptions of marginal analysis and the creation of new theories historical development individual economic phenomena, for example the state.

Note that such “free” assumptions within the framework of limit analysis primarily include the following statements:

That all subjects in a market economy have complete information;

That there is perfect competition in markets;

That all people always and everywhere act as rationally as possible;

That the firm can be represented as an individual entity and its behavior can be explained by a similar model of economic equilibrium;

That the forms of economic organization for all subjects can be monotonous.

These assumptions are questionable because:

Full possession of information is possible only either with centralized planning or in local market conditions;

Perfect competition exists only in one of the organizational forms of markets (the market of perfect competition);

Homo economicus limited in reality both by purposiveness (freedom in choosing resources and goals of activity), utilitarianism (exclusive interest in maximizing utility), and by internal conditions of activity (the presence of sympathy and a high degree of trust in other people);

The company always has an internal hierarchical structure (agent-principal relationship) and cannot organize behavior as a private individual;

Business forms are always diverse due to the presence of multiple forms of ownership and value, which is associated with the continuity of scientific and technical progress, the development of the division of labor and the historical specifics of the development of business entities.

Moreover, if you look at these restrictions, you will notice that their resolution is impossible within the framework of traditional analysis in principle, since any decision of one of them will contradict the other, for example, the local market model is impossible under the conditions of perfect competition, centralized planning undermines trust between participants transactions, etc. In general, according to J. Keynes, the presented assumptions “apply not to the general, but only to special occasion, since the economic situation that it (economic theory) considers is only a limiting case of possible equilibrium states” 1.

In general, so far, within the framework of neoclassics, institutionalism is used only as a new tool for finding new solutions to an old problem - improving conditions for increasing production efficiency. This approach is associated with the analysis of the outcomes of the implementation of various private property rights, which function as a rare economic resource, primarily at the microeconomic level of management, and leads to an understanding of the inevitability of the coexistence of a variety of organizational forms of economic activity. TO main problems of analysis of institutional economics includes identifying:

The effects of alternative sets of rules (property rights) and types of economic organization on behavior, resource allocation, and equilibrium outcomes;

The presence of general patterns of development of production and exchange.

Within the framework of historical schools of economic analysis (new institutionalism), property is considered as a general historical phenomenon, not related to the current efficiency of individual business entities, but ensuring the unity of the entire economic mechanism,

1 Keynes J. General theory of employment, interest and money // Anthology of economic classics. - M.: Delo, 1994.

interaction between classes of society and having various historical forms of implementation that can change, develop and replace each other. Here the institutional approach is associated with macroanalysis, the general structure of the economy and the state and does not go to the micro level of research.

1.2. Subject of study of institutional economics

and its relation to traditional schools of economic analysis

As we noted above, if traditional economic theory (marginal analysis) examines the general laws and principles of the implementation of rational economic behavior (based on given models of economic equilibrium of consumers and producers), then institutionalism examines conditions and laws of organization of the most rational nature of economic activity of subjects, primarily in conditions of a wide division of labor and developed commodity exchange.

Therefore, the object of study of institutional economics (what interest is directed at and about what economic communication is organized) is information that is reproductively significant for business entities, the creative processing of which leads, as a rule, to maintaining or increasing their level of economic adaptation, creative adjustment of the vector of development and always occurs within the framework of certain economic institutions.

At the same time, an economic institution is understood as a set of subjectively determined conditions labor activity people, allowing to effectively organize the process of their material reproduction. This is a system of social elements of an organization labor process, which determines the process of creative adaptation of business entities to changing business conditions in the presence of a basic limitation on intellectual resources (the ability to process information and the ability to create new knowledge) in conditions of a wide division of labor and cooperative communication.

An institution as an economic category appears as a set of organizational relations that regulate the development of individual areas and areas of activity of business entities on the basis of the implementation of the dominant system of property rights and value (for example, the institution of the market, the institution of labor relations, etc.).

The presence of an institution for organizing any phenomenon is manifested in the creation of a set of organizational norms of individual behavior in society (compliance with activity norms, norms for the execution of contracts, norms for the execution of rules, i.e. norms of individual economic behavior). The structure of such an institution inevitably includes: subjective norms of activity and behavior; agreements of counterparties to transactions (contracts related to the division of ownership rights on the terms of activity); rules of conduct adopted for the entire set of counterparties within a given type of activity (the presence of procedures for the implementation of individual norms of behavior adopted on the basis of a system of contracts), compliance with which can be entrusted (if there is a significant tendency to opportunistic behavior) to external management bodies. These elements of the structure of the institution, considered as conditions for a specific type of activity (ensuring the existence of the phenomenon), constitute its internal institutional environment. The development of the institutional environment, in turn, as a form of specific economic activity in the process of social division of labor, leads to the formation of a system of management bodies involved in monitoring compliance with rules of behavior, conditions for concluding and executing contracts, organizing the process of developing individual norms of behavior (control of permission social conflict). This is a special organizational institution, the activities of which are also not ideal, but concretely specific. People working in this area realize primarily their personal interests, and institutional activity itself is only a means of satisfying personal needs.

Let us consider in more detail the internal structure of the institute. Its basis is standard of activity- a certain stamp, a block of knowledge about specific labor actions, which allows one to obtain a given final material or moral result, an item of final consumption. In essence, the norm of activity is a basic element of maintaining the workforce.

Norms of activity are a general way of subjectively embodying knowledge about the material content of work activity, a form of consolidating the results of mental activity, the realized ability to set goals in the economy. Its presence expresses the effect of the law of saving time on a subjective level - a rational method of production is firmly fixed in the human mind for subsequent reproduction and repeated use.

In the process of social communication, based on the norm of activity, a norm of behavior which is nothing more than a socially mediated and implemented norm of individual activity, recognized in the process of communication (resolution of socio-economic conflict, conflict of interests) as socially significant, which has turned into a public value.

Although this norm of behavior is implemented through the activities of each person in a subjective way, it reflects the process of his socialization, as well as the presence in the economy of a special system of relations associated with the coordination of the economic interests of all business entities at three levels of general social conflict (personal, interpersonal, group), which we will talk about in more detail when analyzing the normative nature of human behavior.

Structurally, such a norm differs from the norm of activity in that a conditioned mechanism of its motivation is added to the general block of material knowledge about activity. This second element of the norm of behavior consolidates the knowledge acquired in the process of communication about the possibility and feasibility of implementing an individual norm of activity, its public approval or denial. At the same time, the subject receives information about possible sanctions and consequences of implementing the norm, the conditions for their occurrence, i.e. he becomes a carrier of knowledge of motivation for activity.

Thus, a norm of behavior includes both a norm of activity and a norm of attitude towards it, a norm of motivation for activity. This norm is also a form of expressing the action of the law of saving time at the individual level, since it automatically allows you to “launch” activities upon the occurrence of certain standard situations, conditions of reproduction.

The presence of norms of behavior objectively facilitates the conclusion of contracts and agreements. Standards of behavior that are understandable to everyone and accepted by society constitute the “language” of economic communication in conditions of a wide division of labor, allowing people to organize and carry out joint work activities.

Agreement (contract)- this is a way of forming such norms of joint economic behavior of business entities that ensure a combination of interests of counterparties of a certain type of activity subject to the social division of labor (for example, supplier and consumer, hired worker and employer, etc.). This is a form of organizing a compromise of the economic interests of subjects of any general type of activity. With the help of this mechanism, all individual norms of behavior are transformed into social ones, ensuring the effectiveness of joint activities and expressing the subordination of individual human interests to collective ones. In fact, all human labor activity is a chain of social contracts.

Structurally, the agreement can be represented as a bilateral definition (information description): the content of the norm of activity of each counterparty, taken as an obligation for any period, the conditions for the implementation of this norm of activity, the conditions for monitoring its implementation, sanctions (rewards) for its violation (performance).

A contract must be distinguished from obligations- not every obligation is a contract, for example, a voluntarily accepted obligation taken without concluding agreements is not a contract. But every contract is a voluntarily assumed (bilateral) obligation, the fulfillment of which can be controlled externally.

Contracts, firstly, should be distinguished by the conditions of their conclusion. First of all, they can be selective And indiscriminate. In the first case, subjects have the opportunity to choose counterparties for their activities, in the second - not. Also contracts can be symmetrical And asymmetrical. Within the first group, the possibilities for choosing the conditions for exchanging resources for the parties are the same, but in the second group they are not.

Secondly, contracts differ in the degree of completeness of the description of the conditions for fulfilling the obligations assumed and the method of monitoring their implementation. In this sense, there are classical, neoclassical and relational contracts.

Classic contract is complete and formalized, involves termination of the agreement in case of violation of any clause of the agreement, its guarantor is the state.

Neoclassical contract used primarily when concluding long-term contracts, the terms of which cannot be fully foreseen, or are associated with prohibitively high costs. Under these conditions, a court decision is not always constructive when conflicts arise; as a rule, a third-party arbitrator, an arbitrator capable of reconciling the parties, plays a large role in resolving them. In this case, the transaction is not terminated, but is successfully completed. A neoclassical contract is incomplete and assumes the continuity of relations between the parties in the event of a conflict situation until the completion of the transaction. The guarantor of the contract is a third party.

As the duration of contractual relations increases and their complexity increases, the trust of the parties to each other begins to play an increasingly important role. In conditions when replacing a partner becomes practically impossible, neoclassical contracts are replaced by relational ones (in the case of hierarchical ties, administrative ones).

Relational contract is incomplete, requires long-term cooperation of the parties, the guarantor of the contract is one or both partners.

Also, contracts can be explicit or implicit, concluded formally or informally, while obligations are accepted independently, on the initiative of both or one of the parties.

Functioning in society plays an essential role in concluding contracts. behavior rules, which act for contracting relations of various types of activities as information restrictions and social norms of communication.

First of all, the rules act as a limiter on the choice of content and conditions for concluding a contract, which is appropriate if the limited rationality of human activity is recognized, the rare nature of the intellectual resource in the economy and the presence of common economic interests of all business entities.

Rules of conduct apply to a specific type of activity and, without considering the specific content of contracts, determine the regulatory conditions for their conclusion. They ensure the performance of specific functions of this group of persons, which occupies a special place in the system of division of labor, while respecting the rights and freedoms assigned to them.

From the point of view of the rules, all spheres of labor activity and their agents are equal. The norm of compliance with the rules acts as a certain social contract- a contract accepted by all subjects of a certain type of activity and the economy as a whole.

The rules of conduct socialize the experience of concluding contracts in a certain field of activity, and therefore they become the norms for regulating a certain type of activity as a whole. At the same time, they act as unconditional social values, since, as generally accepted norms, they can significantly reduce contracting costs and save information costs when interpreting intentions. Some rules are so universal that they are successfully applied in all areas of business, and at the same time all types of economic activity appear as equal, built on compliance with general norms of economic activity.

The structure of the rule is as follows: contracting situation + rule = normative content of the contract (compliance with the type of activity) + normal conditions for its conclusion (respect for rights and freedoms) + control over normative implementation + sanctions for violation of the contract.

The implementation of rules of conduct, as a rule (with the exception of informal ones), is controlled externally with the help of special governing bodies, which assume the role of bearer of collective and common interests. At the subjective (personal) level, when the guarantor of the implementation of the rule coincides with its addressee, the rules of behavior appear in the forms of habits and behavioral stereotypes.

However, in society there are always conditions for violation accepted rules behavior on the part of individual agents of activity who expect to receive greater benefits from this due to some subjective reasons. In this case, we should talk about the occurrence opportunistic behavior. Various types of sanctions may be applied to persons who engage in this type of behavior, such as: public condemnation, official censure, fine, coercion, restriction of civil rights and freedoms, death penalty (life imprisonment).

Conducting opportunistic behavior is always associated with the emergence external effects, externalities. These effects, if the perpetrator is brought to justice, can and should be compensated to maintain the overall optimal Pareto situation (if one exists).

The presence of rules of behavior in society leads to the emergence of so-called focal points (note that agreements describe local points of interaction of interests), i.e. spontaneously chosen behavior options by all subjects who find themselves in a given situation. At the same time, each subject obeys the norms of behavior provided for by the rule, assuming that all others act in the same way, which is a more powerful incentive, the more people obey the rule.

Since the rules of conduct describe the entire economic activity of society and the system of property rights as a whole for all business entities, it is possible to carry out a general classification of the rules of conduct in society (Fig. 1).

This classification is generally logical and does not reflect the hierarchy of rules for the construction of which economists propose their own approach, namely: the more important and significant is the rule, the introduction or change of which is associated with the greatest transaction costs and efforts.

In general, focusing on the final result - the functioning of norms and rules of behavior, we can give the following definition of an institution: it is a subjective mechanism for managing the process of functioning of rules and norms of behavior in a certain field of activity, ensuring the interaction of subjects in a broad division of labor and the implementation of the law of saving time for everyone levels and business entities.

In economics, institutions perform three main functions.

Firstly, information function, associated with the identification and consolidation of reproductively significant information in the norms of economic behavior.

Secondly, they do coordinating function linking together through the contracting process and compliance with the rules of conduct of all business entities operating in conditions of a wide division of labor and scientific and technological progress.

Thirdly, they do distribution function limiting through a system of rules the set possible ways and directions of action and monitoring the content of contracts.

In general, the presence of an effective system of institutions in the economy is essential; Thus, according to the results of some studies, it can be argued that the degree of influence of the institutional factor on the rate of economic growth is twice as high as any economic policy. High quality economic policies and economic institutions usually result in GNP growth of 2.4%; if economic policy becomes of low quality, then economic growth still remains at the level of 1.8%; if the low quality of institutions is combined with the high quality of economic policy, then economic growth will be only 0.9%.

Besides internal organization institution, analysis of its content, we can also talk about the external side of this phenomenon, its organizational form (Fig. 2).

From the presented figure it is clear that the external institutional environment for the activities of each person is a set of rules regulating it, the producer and controller of execution (imposing punishment due to non-compliance) of which is the governing body. The interaction of a person with the institutional environment can be more clearly represented using a diagram (Fig. 3).

This scheme reflects the following stages of interaction: 1) the impact of individuals on institutional agreements is determined by a voluntary agreement concluded in the form of a contract; 2) the institutional environment, including a hierarchical system of rules, influences institutional agreements, limiting their scope and determining the conditions of contracting; 3) institutional agreements influence individual behavior, subordinating it to the requirement of fulfilling contracts; 4) institutional agreements influence the institutional environment, predetermining the content and change of rules; 5) the institutional environment influences individual behavior, providing the person with the necessary knowledge and the framework of his future activities, the prerequisites for the emergence of contracting relations; 6) the individual influences the institutional environment by electing governing bodies and participating in the adoption of the most important laws.

Thus, from the external, organizational side, the institution of functioning of a certain type of activity is an elementary unit of the institutional environment and includes: counterparties of economic activity entering into contracting relations; the body managing the development of the institution, monitoring the fulfillment of the obligations assumed by the parties and regulating their activities by producing internal rules of conduct; the results of the functioning of the institution - norms of activity, norms of behavior, rules - norms of communication.

The essence of the concept of “economy”

Currently, the term “economics” is widely used. But it turns out that this term was used back in the days Ancient Greece. Literally it means the art of housekeeping or estate management. Nowadays this term has a slightly different meaning.

Definition 1

Economy is the system of production, sale and distribution of material and spiritual goods and the set of relationships that arise in this case.

At the same time, economics is a branch of science that studies the patterns of formation of production and sales of products, their distribution, management economic activity and forecasting ways of economic development.

Economics solves the problem of meeting growing human needs in conditions of limited resources. The importance of the economy lies in the fact that it is the material basis for the development of society. The higher the level of economic development of a country, the higher the well-being of its population, the greater the volume of national wealth. This means that society has more opportunities to better meet the needs of both individual citizens and society as a whole.

The concept of “institutional economics”

Institutional economics is a branch of economic science (school of economic theory) that studies the evolution of social institutions (state, law, morality, traditions, etc.) and the degree of their influence on the formation of economic behavior.

This term appeared in economics at the beginning of the twentieth century thanks to the works of Thorstein Veblen and Walton Hamilton. This branch of economic science has become a branch of neoclassical economic theory. It includes the following theories:

• theory of property rights;
• transaction cost theory;
• theory of optimal contract;
• public choice theory;
• theory of new economic history.

One of the main subjects of study of institutional economics is the system of government governance structures. The constituent structural elements of the management system are various organizations (institutions), the economic system and the structure of society. Institutions are considered as a condition for the rational behavior of an organization (economic agent) and as a means of saving on rationality.

Features of institutional economics methods

Like any science, economics has its own set of means of understanding the subject of study. An important component of this set is the methodology.

Definition 2

Methodology is the branch of science about methods. scientific research various objects and phenomena.

Methods of institutional economics are integral part set of methods of economic analysis.

Definition 3

Methods of economic analysis are a set of methods, techniques and means by which economic phenomena and processes are studied at all levels of the economy.

The methodology of institutional economics has the following features:

• more emphasis and importance is placed on understanding than on prediction;
• the inevitability of uncertainty is taken into account;
• limited possible prediction of the future compared to modeling;
• economic theory is perceived as a combination of deduction and induction;
• the economy is viewed not as a static entity (mechanism), but as an integral system evolving over time;
• importance in creating the basis for solving problems is given to instrumentalism and pragmatism, and not to science fiction projects;
• the inevitability of the use of standards of economic theory and the economic significance of the state is determined;
• open democratic expression of assessments and judgments, discussions and criticism is expected, rather than the use of implicit (hidden) assessment;
• calls for pattern modeling rather than limited causal explanation are suggested;
• Methodological collectivism is supported, and its combination with non-ideologized individualism is allowed.

The methods of institutional economics (institutionalism) have some differences from the methods of menstrual economics. The difference is less reliance on economic tests of hypothetical generalizations. They are more based on comparative methods and generalizations of studies of social groups and their economic activity.

Among the methods of institutional economics, we can highlight the most widely used ones:

• sociological research;
• induction;
• studying previous experience;
• study of local phenomena and processes and formulation of general conclusions;
• study of subjective indicators;
• use of interdisciplinary (interdisciplinary) connections.

Sociological research allows us to study the forms of interpersonal relationships that arise in the process of economic activity. Their influence on various social and government institutions is also studied. The above methods are applied using personal, group and sociometric approaches.

The personal approach allows us to identify the role and place of the individual in the modern economy, the interaction and mutual influence of man and production. In addition, this allows you to receive “feedback” about a person’s perception of the degree of effectiveness of the activities of certain institutions. The group approach allows us to analyze the role and place of social groups both in the economy and in society. Thanks to this approach, it is possible to predict the development of many processes in society.

Based on subjective assessments of citizens, one can obtain qualitative indicators during the application of the sociometric approach. This distinguishes institutional economics from industrial economics, where people's subjective opinions are not taken into account. In fact, generalization of subjective opinions makes it possible to clarify the real attitude of the broad public masses to various economic and socio-political processes and phenomena.

Topic 1. Subject of study of institutional economics

1. The role of institutions in the functioning of the economy

2. Institutionalism and neoclassical economic theory

3. Old and new institutionalism

4. Main trends of modern neo-institutionalism

The role of institutions in the functioning of the economy

In an effort to compensate for their own imperfections, people develop behavioral stereotypes based on past successful experience and thereby save on the costs of decision-making. Stable stereotypes (routines) and values ​​inherent in people form them mental models– models of perception of the surrounding world, which is too complex to perceive in all its diversity. In the process of interaction, people have to adjust these models, developing common ideas about basic things (shared mental models). They form the culture of society, within which norms of behavior are formed.

Norms of behavior are reflected in the structures that regulate human activity. These structures, that is, rules that are supplemented by mechanisms for enforcing their execution, are usually called institutions.

Institutions that exist in society create incentives that influence people's behavior. They reduce the costs of choice under conditions of uncertainty and allow structuring the costs of functioning within the system. The formation of these institutions is associated with the experience of interaction between people and their common history.

Attempts from the outside to introduce alien rules will be unsuccessful if they run counter to the culture of society and existing informal practices. On the contrary, formal consolidation of existing practices can be very successful. Institutions are extremely inert due to cultural and historical factors, but they still change. This happens as the agents who make decisions gain experience. Experience allows them to adjust existing mental models and opens up new opportunities for innovative behavior, which contributes to the emergence of new practices and the formation of new institutions. An important factor here may be changes in relative prices in political and economic markets.

to institute (English) - establish, establish.

The concept of institution was borrowed by economists from sociology, political philosophy and social psychology.

An institution is a set of roles and statuses designed to satisfy a specific need.

John Rawls book “The Theory of Justice”: an institution is a public system of rules that define an office and position with corresponding rights and duties, power and immunity. Examples include games, rituals, courts and parliaments, markets and property systems.

In economic theory, for the first time, the concept of institution was included in the analysis Thorstein Veblen.

Institutions are a common way of thinking; the system of life of a society, the prevailing spiritual position or the popular idea of ​​the way of life in a society.

Veblen also understood institutions as:

Habitual ways of responding to stimuli;

The structure of the production or economic mechanism;

The currently accepted system of social life.

John Commons defines the institute as follows:

An institution is a collective action to control, liberate and expand individual action.

Wesley Mitchell gives the following definition:

Institutions are dominant, standardized, social habits.

Currently, the most common interpretation of institutions is Douglas North:

Institutions are the rules, the mechanisms that enforce them, and the norms of behavior that structure repeated interactions between people.

The economic actions of an individual take place not in an isolated space, but in a certain society. And therefore it is of great importance how society will react to them. Trades that are acceptable and profitable in one place may not be profitable in another place. For example, restrictions imposed on human economic behavior by religious cults.

Within the framework of economic and social orders, patterns or algorithms of behavior are developed that are the most effective under given conditions. These schemes and algorithms or matrices of individual behavior are called institutions.

Institutionalism and neoclassical economics

There are several reasons why neoclassical theory (early 1960s) no longer meets the requirements placed on it by economists:

1. Neoclassical theory is based on unrealistic assumptions and limitations, and, therefore, it uses models that are inadequate to economic practice.

2. Economic science expands the range of phenomena (for example, such as ideology, law, norms of behavior, family) that can be successfully analyzed from the point of view of economic science.

3. Within the framework of neoclassics, there are no theories that explain dynamic changes in the economy.

The premises of neoclassical theory, which constitute the hard core according to Imre Lactos:

1. stable preferences that are endogenous (internal) in nature;

2. rational choice (maximizing behavior);

3. equilibrium in the market and general equilibrium in all markets.

Protective belt:

1. Property rights remain unchanged and clearly defined;

2. The information is completely accessible and complete;

3. Individuals satisfy their needs through exchange, which occurs without costs, taking into account the initial distribution.

A Lakatosian research program, while leaving the hard core intact, should be aimed at clarifying, developing existing ones, or putting forward new auxiliary hypotheses that form a protective belt around this core.

If the hard core is modified, then the theory is replaced by a new theory with its own research program.

The evolution of institutionalism

Institutionalism, as an economic movement, arose at the turn of the 19th and 20th centuries. He was associated with the historical direction in economic theory (List F., Schmoler G., Bretano L., Bucher K.).

Institutionalism was characterized by upholding the idea of ​​social control and intervention of society, mainly the state, in economic processes. The most prominent representatives of “Old Institutionalism” are: Thorstein Veblen, John Commons, Wesley Mitchell, John Galbraith.

T. Veblen rejected the concept of rationality and the corresponding principle of maximization as fundamental in explaining the behavior of economic agents. The object of analysis is institutions, not human interactions in space with the restrictions that are set by institutions.

The works of the old institutionalists are distinguished by interdisciplinarity - the continuation of sociological, legal, and statistical research in their application to economic problems.

Modern neo-institutionalism originates from the works of Ronald Coase “The Nature of the Firm”, “The Problem of Social Costs”.

Neo-institutionalists criticized the following provisions of neoclassical theory.

1) First, the premise that exchange occurs without costs has been criticized. In a real economy, any act of exchange is associated with certain costs. Such exchange costs are called transaction costs. They are usually interpreted as “the costs of collecting and processing information, the costs of negotiations and decision-making, the costs of monitoring and legal protection of the execution of the contract.”

The concept of transaction costs contradicts the thesis of neoclassical theory that the costs of functioning of the market mechanism are equal to zero. This assumption made it possible not to take into account the influence of various institutions in the economic analysis. Therefore, if transaction costs are positive, it is necessary to take into account the influence of economic and social institutions on the functioning of the economic system.

2) Secondly, recognizing the existence of transaction costs, there is a need to revise the thesis about the availability of information. Recognition of the thesis about the incompleteness and imperfection of information opens up new prospects for economic analysis, for example, in the study of contracts.

3) Thirdly, the thesis about the neutrality of the distribution and specification of property rights was revised. Research in this direction served as a starting point for the development of such areas of institutionalism as the theory of property rights and economics of organizations. Within the framework of these directions, subjects of economic activity “economic organizations have ceased to be viewed as “black boxes”.

Representatives of neo-institutionalism view institutions through their influence on the decisions made by economic agents. Some representatives of modern institutionalism question the very premise of the utility-maximizing behavior of economic man, proposing its replacement by the principle of satisfaction.

The main representatives of neo-institutionalism are: R. Coase, O. Williamson, D. North, A. Alchian, Simon G., L. Thévenot, Menard K., Buchanan J., Olson M., R. Posner, G. Demsetz, S. Pejovic, T. Eggertsson.

Coase theorem

When one person uses property, it can have negative or beneficial consequences for other people. If the actions of one party affect or can with a certain probability affect the change in the welfare of the other party, then in this case they say that the actions of one party create an external effect for the other party.

External effects can be very diverse: positive, i.e. beneficial to the other party, and negative - causing harm to the other party. External effects can arise both at the moment when the party creating them performs any actions, and in the future, when the action has already ceased; they may affect one party or many parties. There are several classic examples of externalities.

Causing inconvenience. When a person creates a nuisance for his neighbors by making loud noises, letting his dog run around, or emitting unpleasant odors from his home, he creates negative externalities that arise at the time of this activity and usually affect a small number of people.

Pollution environment. When a business emits harmful substances into the air or discharges them into a river, there is a decrease in the utility of those who breathe that air or fish in that river. This is a negative externality that can occur immediately or in the future and usually affects a large number of people.

Dangerous behavior that poses a risk of accident. Certain behaviors can cause harm to others under certain circumstances, for example, careless driving can have negative consequences for pedestrians. The injurer's insufficient precautions create a negative externality for the accident victim.

Use of a publicly available resource. When a large number of people use a limited resource (a pasture, a lake with fish, an oil field), externalities arise that lead to the depletion of the resource. Each person who decides to use this resource creates externalities that harm other people. For example, an additional cow brought into a public pasture reduces the amount of meat that can be produced from each cow grazing the pasture. This is a negative external effect that occurs at the time of activity or manifests itself later and affects a large number of people.

Useful activity. A person's actions can benefit not only himself, but also other people. For example, a beekeeper's bees pollinate his neighbor's fruit trees, so keeping bees creates a positive externality.

Handling rented items. A person who leases a piece of land may create negative externalities for the land owner, such as by exposing the soil to erosion, but he can also create positive externalities by fertilizing the land.

Externalities are not simply costs produced by one party that must be borne by the other party. In almost all cases, the existence and magnitude of externalities depends on decisions made by both parties. Coase's assertion about the reciprocal nature of the problem of externalities, which he makes at the very beginning of the article "The Problem of Social Costs", removes the atmosphere of guilt, moral condemnation of one of the parties and allows us to focus on how to find a solution to the problem that would lead to maximum efficiency resource use. The concept of harm-doer "...can only be applied with caution in a Coasian world of reciprocal causation, in which each party to any unfortunate interaction is equally positioned in terms of causation."

I wouldn't be coughing if the plant next door to my house wasn't spewing sulfur dioxide into the air. But the plant would not harm me if I did not live next to it. This is a joint decision - the plant's to pollute the air, and mine - to live next to the plant, and creates externalities. If the plant is not responsible for the pollution, then its decision to pollute creates a cost for me. If the plant is liable, then my decision to live near the plant creates a cost for it. He must either pay compensation or install filters. The traditional solution to this problem has been to tax the factory on the external costs it creates, thereby allowing the externalities to be internalized. By internalization of external effects we mean the transformation of external effects into private costs, which an economic agent is forced to take into account when making decisions.

But let’s assume that the damage to residents from the plant is $200 thousand per year. It can be eliminated by spending $100,000 a year on cleaning equipment. Let us further assume that the cost of relocating residents is $50,000 per year. If we introduce a pollution tax of $200,000, the factory will stop emitting and install filters at a cost of $100,000. If we don't impose a tax, the factory will continue to pollute. Residents move, and the cost of this option is $50,000. The result without the tax is more efficient: the problem is eliminated at the lowest cost. It turns out that in this case the result of the decision to introduce a tax is ineffective.

Externalities are the cause of market failure.* Market failure can be eliminated with the help of the government. The state imposes a tax on persons creating externalities, the amount of which would be such that, after its payment, the private costs of the party creating the externality would be equal to the social costs of its activities.

Coase suggested that another solution to this problem might be private settlement of disputes over externalities.

In some cases, a conflict between parties arising from the sharing of a resource can be resolved through negotiations between the parties and the conclusion of a mutually beneficial agreement.

Let us use the court case Sturges v. to clarify this statement. Bridgman (1879), with the help of whom Coase explains his approach in the article “The Problem of Social Costs” [Coase, 2007c, p. 100-101]. In this process, the pastry chef used two mortars and pestles for his business. A doctor moved in next door and, eight years after moving in, built a reception room at the end of his garden, directly opposite the confectioner's kitchen, and then discovered that the noise and vibration generated by the confectioner's equipment prevented him from using the new reception area. The doctor went to court to force the confectioner to refrain from using his equipment; the court upheld the doctor’s claims and ruled that he had the right to prohibit the use of the confectioner’s equipment. Let us assume that the costs and benefits of using the equipment are as follows.

We assume that each additional hour of mortar operation creates more external costs than the previous hour. These costs for the doctor manifest themselves in a decrease in his income. Before the doctor sued the confectioner, the confectioner operated the equipment for 8 hours. At this point, the confectioner's marginal net benefit (line MNB) drops to zero, and the confectioner earns a maximum profit of 56. However, the optimal noise level is 4 hours. Up to this level, the marginal net benefit exceeds the marginal external cost (MEC line), which manifests itself in the decrease in the doctor's income (at this point the marginal net social benefit from (MNSB line) running the mortar is zero). If an additional hour of noise adds more to benefit than to cost, then the nuisance created will be effective.

Coase theorem

If property rights are clearly defined and the resulting powers can be freely exchanged, and if transaction costs (including information gathering costs, negotiation costs, and rights enforcement costs) are zero, then the allocation of resources will be efficient and unchanged, no matter what the initial distribution of property rights.

The Coase theorem contains two basic conditions that must be met in order for the legal system not to influence the allocation of resources and production efficiency. The first of these is a clear specification of property rights. The exchange of powers must be preceded by a determination of who owns the disputed powers. This can be represented schematically as follows:

Specification --------> Transactions --------> Final

and the original exchange distribution

distribution of powers by powers

powers

Coase drew attention to this condition in the article “Federal Communications Commission” (1959), which preceded the article “The Problem of Social Costs.” In it, Coase put forward the idea of ​​​​the possibility of creating a broadcasting market. It was believed that without government control, broadcasting stations would operate on the same frequencies, creating interference for each other. The reason for the introduction of government regulation in this area was the chaos that arose as a result of the laissez-faire system in this area. In 1927, the Federal Radio Commission was created to regulate the use of broadcast frequencies. Coase believed that the state should not regulate the distribution of radio frequencies, but should introduce private ownership of electromagnetic waves of different frequencies, as a result of which a market for these frequencies would emerge and the need for government control would disappear. Coase stated that the chaos in the radio airwaves did not arise as a result of competition, but because property rights to electromagnetic waves of different frequencies were not established. The idea of ​​establishing property rights and creating a market for physically unobservable objects - electromagnetic waves - was unusual, but it became a reality when a group of scientists, including three economists, one lawyer and one physicist, proposed a model of property rights in the field of the electromagnetic spectrum, which was used in the privatization of the electromagnetic spectrum in New Zealand, Australia and some Latin American countries. Establishing ownership rights in the electromagnetic spectrum means that each spectrum user is allocated a specific time, place and frequency that they can use as they wish. The spectrum is not divided into blocks, and technical parameters for broadcasting are not established. Property rights must achieve certain goals. They must be exclusive, predictable, exchangeable and defensible, divisible and flexible. If they meet these requirements, then they can solve the problem of radio interference.

The main significance of this article was that in it Coase stated that the market cannot function without a clear specification of property rights: “... the determination of property rights is a necessary prelude to market transactions; but the end result (which maximizes the value of production) does not depend on the legislative decision."

Support for this idea can be found in the system of private lighthouses in England described by Coase. Traditionally, in economic theory, the light of a beacon is considered an example of a public good. The information transmitted by the beacon's light travels long distances, so those ships that use this information can do so without paying for it. J. St. drew attention to this. Mill: “It is impossible to force ships at sea that have used the services of lighthouses to pay a toll for them.” Coase showed that a system of private lighthouses operated in England for some time [Coase, 2007a]. The state could not cope with meeting the needs of ships for lighthouses, i.e. There was a “failure of the state”, and the owners of the ships petitioned the king to allow private individuals to build lighthouses and impose a duty on ships that used the light of the lighthouses. The state granted private individuals an exclusive franchise to build and operate lighthouses and royal powers to collect tolls from all ships that used lighthouses. The costs of building lighthouses were enormous, and the operation of lighthouses was no less risky. It happened that during a storm, both the lighthouse itself and the owner, along with the lighthouse operator, were washed out to sea. To private system lighthouses could function, it was necessary to create conditions under which the private benefits from the construction and operation of lighthouses would be greater than the private costs. The role of the state was limited to establishing and protecting property rights to lighthouses and the right to levy fees for the use of lighthouse light. In addition, the state established a fixed scale of duties and assisted in the collection of these duties*. The collection of duties was carried out at the ports by special agents who could represent the interests of several lighthouse owners at once. The amount of the fee depended on the location of the lighthouse and the size of the ship. The ship paid for each lighthouse it passed. Books were published that determined the lighthouses for each route and the amount of payment for them. The system of private lighthouses ceased to exist only in the 30s of the 19th century.

The second condition of the Coase theorem is zero transaction costs, which will not prevent the conclusion of a mutually beneficial deal between the parties to the conflict.

Solving the problem of externalities by concluding mutually beneficial agreements can be hampered by high transaction costs. In this case, the court's decision on which of the parties to the conflict should transfer the corresponding authority (the right to create an external effect or the right to prohibit activities that create an external effect) will have an impact on the allocation of resources and it may turn out to be ineffective.

When transaction costs block negotiations and prevent agreement, the efficiency of resource use will be determined by the initial distribution of property rights.

Transaction costs are key to the functioning of the market. If transaction costs are insignificant, then externalities can be eliminated through the market mechanism without government intervention. The inefficient distribution of property rights will be corrected through the process of market exchange of these rights. However, if transaction costs are high and prevent the conclusion of market transactions between parties, then the initial distribution of property rights will have an impact on the allocation of resources and production efficiency.

Topic 6 Contract theory

1. Concept and types of contract

2. Adverse selection and ways to prevent it

3. Moral hazard and ways to prevent it

Concept and types of contract

Contracts are the legal formalization of economic transactions.

A contract in the legal sense is an agreement, an agreement that establishes the civil rights and obligations of the parties and specifies the duration of the agreement.

A contract also refers to a civil legal relationship arising from an agreement and a document that sets out the contents of a contract concluded in writing.

Contracts in economic theory are considered not only as purely market agreements that prevail in a perfectly competitive market, but also as a “relationship”. Agreements may be implicit, implied, not expressed in words and not recorded in a document that has the force of law behind it.

A perfect contract is a contract in a world of perfect (complete) information, where there are no lengthy transactions, where everything can be done at once. In all cases, contracts will be executed simultaneously, because they completely coincide with the physical movement of objects.

The world of perfect information presupposes the following conditions:

1. absolute rationality;

2. complete information (perfect information);

3. absolute computing abilities (instant calculation).

In the real world, these conditions do not exist, which is why our contracts are imperfect

The reasons for the incompleteness of a contract are the limitations of human foresight, the inability to provide for all possible contingencies, too high the costs of making calculations when distributing risk in contracts, the lack of an accurate and sufficiently rich language to describe all possible circumstances and the distribution of responsibility, as well as the impossibility of verifying information by a third party.

Even if some contingency can be provided for and planned in the contract, and the contractual relationship is reliably protected, other difficulties may arise, both during the period of concluding the contract and in the process of its execution. One of the parties to the contract may have important private information both at the ex ante stage, before the conclusion of the contract, when negotiations on its conclusion are still underway, and at the ex post stage, i.e. after the conclusion of a contract, when the available information is insufficient to assess whether the terms of the agreement are being met or not. Information asymmetry means that the buyer and seller know different amounts of information relevant to the transaction. The party with more information can win if it uses its information advantage.

Three types of opportunistic behavior can be distinguished, which correspond to different types information asymmetries:

1. the buyer does not know the qualitative characteristics of the good, there is an asymmetry of information called “hidden characteristics”, which can lead to adverse selection (adverse selection)*;

2. hidden actions/hidden information**, which lead to moral hazard of the party that has the information;

3. Hidden intentions of the transaction partner are fraught with the danger of the third type of opportunistic behavior - extortion (hold-up).

The threat of opportunism increases the transaction costs borne by both parties. Reducing opportunities for opportunistic behavior would allow them to be directed towards productive purposes.

Neoclassical contract

Not every deal fits into the classical contract scheme. If a transaction is carried out under conditions of uncertainty and its execution takes a long time, then foreseeing all future circumstances and fixing them as terms of the contract turns out to be too difficult, expensive or even impossible. In this case, a neoclassical type contract is concluded.

A neoclassical contract is a long-term contract under conditions of uncertainty, which is more reminiscent of an agreement on the principles of cooperation. In a neoclassical contract, the parties are not faceless, personal relationships play an important role, the parties interact with each other. In these contracts, the source of added value is the continuity of the transaction.

The longer the relationship between the parties and the more complex the subject matter of the transaction, the less importance is attached to price and quality characteristics at the stage of concluding the contract, and the more attention is paid to the rules that will govern the relationship of the parties, the adaptation of the parties to unforeseen circumstances, and the termination of them relationships. Rather than fixed prices, flexible pricing rules apply. These rules can be as simple as having prices follow the cost of living or index them, or as complex as the cost-plus rule or setting prices as a percentage of sales, as used in shopping center leases. There may be such a clause in the contract that can be classified as the rules governing adaptation to unforeseen circumstances: “If for any reason there is a decrease in product output, then this decrease will be evenly distributed when delivering to various customers.”

Comparing some empirical research Regarding the identification of the relationship between the degree of specificity of resources and the type of contract, Menard identified four characteristic features of a long-term neoclassical contract: 1. a neoclassical contract can determine a mechanism for adapting to unforeseen circumstances (in particular, the creation of a joint committee); 2. a neoclassical contract can create a certain zone of tolerance, i.e. area where risk sharing occurs. For example, a contract concluded between a power plant and a coal mining enterprise may provide for a certain zone (±10%) in which the prices at which coal is supplied remain unchanged, despite market changes in market prices for coal; 3). The contract may provide for disclosure of information, for example, about unexpected changes in costs. In the 1930s, G. Ford concluded contracts with suppliers in which the price was determined on the basis of the “cost plus” rule, i.e. based on costs plus a certain percentage of profit. The use of this rule is based on trust in the supplier or the ability to control its costs. Ford's contracts with suppliers included a provision for Ford to control supplier costs; 4. a neoclassical contract contains terms that provide for recourse to an arbitrator rather than to a court. That is why Williamson points out that the neoclassical contract from the very beginning is tripartite in nature, since it includes an agreement on an arbitrator [Williamson, 1996, p. 136-137]. For example, in the case of construction contracts, the architect may act as such.

The parties may assess the situation differently, while both may behave in good faith and their opportunistic behavior may be “involuntary,” i.e. they break commitments without wanting to be dishonest to their partner. However, such “unwitting” opportunistic behavior is no less destructive for the transaction than outright deception, because it destroys the reliability of promises, leads ex post to transaction costs in resolving disputes, and ex ante to insufficient investment in specific resources. Therefore, a dispute resolution mechanism must be chosen. Due to the incompleteness of the contract, disputes under a neoclassical contract arise more often and are more difficult to resolve.

However, parties to a neoclassical contract may provide for the possibility of disputes in the contract. Thus, in America, the usual condition of collective agreements between the employing company and the trade union representing the interests of the company’s employees is the “no strikes” condition. In parallel, the “no lockouts” condition is often adopted. These conditions are accompanied by procedures for expressing dissatisfaction provided for in the contract and resolving labor conflicts through arbitration.

Why, in a neoclassical contract, do the parties turn to an arbitrator rather than to the court? In the event of litigation, the continuation of the relationship between the parties is unlikely. Any relationship breaks down if the dispute is resolved in court. In addition, litigation is time-consuming and expensive. Courts generally cannot force parties to act in accordance with written contracts; the main remedy they provide is compensation for damages to the party injured by the breach contractual obligations. Court decisions to enforce a contract are a less common measure, and in transactions using neoclassical contracts, it is the continuation of activity, and in the shortest possible time, that is more important than compensation for damage. Moreover, resolving a dispute in court is associated with great difficulties if it is necessary to control the quality of goods, especially complex ones, or if specific investments have been made.

When the court is faced with a problem that it is not able to solve, it chooses a “passive” strategy - it forces the execution of the formal terms of the contract. The court may, for example, exempt a party from performing a contract that has become physically impossible as a result of some unforeseen event, for example, a fire that destroyed a department store building for which a special elevator was manufactured that was unsuitable for use in other buildings. In this case, the information on the basis of which the court makes a decision can be observed and controlled by a third party - the court. But in another case, the court will confirm the contract, despite the fact that for one of the parties, as a result of external events, fulfilling the terms of the contract has become too expensive. In this case, the court will not make changes to the terms of the contract, because information about production costs cannot be reliably confirmed.

In the economic theory of contracts, a distinction is made between information that the parties can observe (observable information) and information that can be controlled by a third party (verifiable information). This distinction is made because the costs of proving to a third party that a certain state of affairs existed or a certain action was performed may exceed the benefits of doing so. For example, an employer knows whether his employee is shirking or not, but the costs of proving shirking before an arbitrator or in court can be quite high, i.e. employee shirking is observable, but rarely provable. Therefore, if dismissal is possible only for good cause, then the employer's best strategy is to limit dismissal to cases of egregious poor performance and take into account the usual shirking in salary or when deciding on the employee's promotion.

Thus, we can say that information is observable if collecting that information is economically feasible, but the costs of proving it to a third party exceed the benefits; information is verifiable if it is observable and it is economically feasible to prove it to a third party.