Trajectories of institutional changes, transaction costs and time

The effect of social lock-in arises, when there is agents' non-coordinated behavior. That is why institutions and behavior models are imperfect. That is why they lose their functions, and the problem is not in the fact, that inefficient norm is steady, but that there is always a deviation from efficiency “ideal”. But the agents can continue to follow the given norm, or rule. Thus, the institutions dysfunction is formed which can dynamically change because of this disagreement as well.

As a rule, the revolutionary change of the development trajectory is accompanied, by considerable costs and real losses of national wealth elements. Such change can thrust the countries decades back. Probably, it should also be considered as an example of lock-in effect. In any case, being an example of the trajectory “independent on previous development”, revolutionary way presents an attempt to force society development efficiency, that is, it is the way of dysfunction overcoming which leads to management paralysis and undermines vital parametres, causing the specified method as a necessity. Certainly, these arguments are true, when we do not speak about the revolutionary situation modeling, that is, when investments from the outside are allocated to change a trajectory or basic institutions of a country's development. Without any doubts, the base system's parametres are the time of the change and the time necessary to liquidate negative characteristics of this change. And the character of the change is unimportant characteristic. All the changes influence the transaction being carried out. Under transaction we understand interaction between the agents, and between agents and institutions. Interaction between institutions is all the same carried out by the agents, because if we apply influence neutralization method of the agents, who actually create and change institutions, then there is simply no identification object of institutions interaction. If there is no person, there are also no rules and there is also no public system as such. In connection with these arguments, it is very important to consider the principle of prediction of agent's reaction on the rules as a principle of institutional planning.

I will show the influence of this principle on the simple and close to me example of engineering activity stimulation. This question does not seem to be difficult. However, this problem reveal the whole complex of theoretical questions in the field of labour economics and wages theory, and besides estimation of intellectual capital and estimation of the so-called “interspecific” resource of firms, intrafirm policy planning in the field of scientific and technical design, and etc.

Really how should the work of an engineer be estimated if his activity deals with the workings out of new production, inventions, search of new engineering solutions? If we give a rough estimate of the engineer's work, he is a generator of innovations. He designs and produces them at the level of ideas and decisions. Only then, having received necessary monetary (credit) resource, these ideas and decisions are realized in products and turn to be real innovation, advanced and bringing in return. At the stage of ideas and solutions there is no information about the expected income. Then what makes an engineer improve this product, change the design, look for new engineering solutions? Usually a problem is a strong motivating factor, but whence is there a problem? There is information about the demand for this product, or such set of engineering solutions or prospective solutions. Because the customer, even being an expert in the given area, nevertheless, cannot know the final version of those technical needs he himself has. The market of innovations has unique characteristics distinguishing it radically from the market of usual homogeneous products, sold, in particular, by the food-processing industry. Each engineering solution, a detail, a device can be produced in a way, which add the functions or properties which cannot be provided by other means and which the customer did not expect. These properties are the result of laborious task, applied researches and research and development. In this case, time expenses become limiting, when a detail, a device or a product is introduced on the market. That income, which the firm will get selling the product, solution or the project is usually indicated in the developmental contract, but, in principle, the amount of the future income is unknown, and there are no exact methods of its estimation, because it is impossible to estimate the expenses precisely, if design implementation takes much time. Therefore, the estimation of an engineer's labour is not exact.

Let's assume, that this work is estimated according to the time spent on the design, then it is a question of time remuneration of labour. But what should be the unit of payment? Should it be an hour or a working day? During the Soviet time a standard, called hour-norm, was introduced. Then, it was connected with the produced drawing documentation. This approach ruined the productive engineering activity, sharply lowering the quality of engineering designs with the following engineering qualification degradation. What is the reason? The reason is just in the effect of the principle of agents' reaction. To be more precise, it is the prediction of this reaction which was not considered in the exercise of institutional changes.

Rules change of labour remuneration and stimulation are usually very strong institutional change as it transforms agents' expectations and their motivation. Such change influences labour productivity and satisfaction from trade. In other words, wage is money supply which agents obtain, in accordance with the established institution, providing its functional variety and quality of the executed functions, that is, its dysfunction degree. If it is necessary to have a large number of the drawing documentation which will provide high hour-norm and, hence, payment, the number of details and details complexity will be increased in the design, as the necessary detailed drafting will also increase the number of documentation for report and the number of hour-norm will increase. As a result, an engineer stops thinking on the basis of optimization and resource efficiency, in agreement with the optimal designing. Invention and rationalization activity in this case is not also encouraged, as such kind of activity contradicts criterion of documentation preparation and increase of hour-norm. The general result depends on inspectors who often have low qualification in comparison with the classical engineering personnel. There also appear informal bargains, manipulation of hour-norm and drawing documentation that affects the quality of engineering documentation. All the specified methods of stimulation and compensation for this work de-stimulate such work and do not promote its development.

If information volume measured in megabits is accepted as the payment criterion of engineering work presented in the form of the drawing documentation, engineers start increasing the number of sections, cross-sections and leaders, complicating the drawing reading, only to increase this criterion, and, respectively, the wage. Certainly, actions are undertaken to get larger result with smaller efforts, that is, to have higher wages without increase in the professional return.

Finally, the most effective method of payment is remuneration of engineering labour according to the final result. It seems to give the greatest return and personal interest of an engineer in the work, including the problems solution of resources economy and getting an optimal design. But, on the other hand, unless this final result is obtained, and the design may take more than a year, what wage should be given to the working agents performing the intermediate stages of this work and carrying out actions aimed at the specified final result? And the quality of this result depends on the performance of these intermediate stages.

When engineers of some firm suggest similar decisions faster, that is, it will take them less time to find some solution and to make an improved or absolutely new design, the firm will appear in the market with this working out earlier than the others. It may not be true that it is much more favourable to be the first, especially in the field of absolutely new solutions. The reason is that the consumer can reject absolutely new product or device, if there is no corresponding programming of demand, which is the main marketing method and method of consumer expectations and preferences formation in modern economy (consumer's independence principle has not been an actual principle of economic science for a long time as the facts provide another correlation concerning this problem). Nevertheless, other things being equal, time is an organization resource. It is evident even from the form of intellectual labour remuneration. Any of the named three forms, regardless their efficiency, results from estimation of time necessary to make engineering solution and structural design. The development cost includes the time of this design. Time remuneration of engineer's labour includes salary for the hours worked, appointed by the employer plus the award which is appointed if the work is executed, and the result is obtained, that is, the product is developed in due time. In my opinion, this kind of payment is logical and motivating. Work quota setting according to hour-norm and number of drawing documentation or to the volume of drawing documentation presented electronically, ruins engineering and quality of such intellectual work. In principle, any scientific work is not compatible to such form of payment. The system of grants is also far from perfect. Though, on the one hand, it is the total amount of resources allocated to achieve the final result, but, on the other hand, this amount of resources can be insufficient for the result. For example, it is understated. But, simultaneously, it creates an illusion of scientific researches and applied workings out financing. Thereby, planning errors, including the necessary finance and impossibility to consider all the complexities of search work which the researcher may find in the future, generate great estimation complexity of intellectual work financing and products design in time. institutional economy transaction market

Thus, it is necessary to consider time as the basic resource at institutional planning. Moreover, a plan presupposes execution stages of operations, that is, time intervals during which a certain work is carried out. Any exchanges or transactions are also characterized by the costs, and time costs for today are considerable in their importance, though they are an immeasurable part of all the expenses.

If we introduce the average transaction costs of the system (TrS) as the ratio of the transaction costs sum according to the new (Trn) and old (Tro) institutions to the general number of institutions (the sum of the new and old ones is correspondingly nn and no), then, introducing the condition, that transaction costs are proportional to the number of institutions, and on the new and old institutions accordingly with the coefficient of proportionality (г, в - accordingly), accepting the ratio of the number of new institutions to the old ones б, it is possible to write down:

Then:

.

In the same way it is possible to receive the correlation for the average transaction costs of the system, accepting instead of the new and old institutions the designation of formal and informal rules. Then, coefficient б will show the ratio of the number of formal and informal norms regulating functioning of the given system, г and в will accordingly be the coefficient of proportionality for costs according to formal and informal norms correspondingly (from the number of these norms which are the function of time).

If factor в is quite determinate and known, as old institutions are known, as well as informal ones they can be specified as invariable for the system at the examined time interval, coefficient г for new and formal institutions is unknown in advance, it requires prognostic estimation. As regards coefficient б, this coefficient is the object of institutional planning. This parametre should be regulated, and political system influences it directly. If there is absolute dependence on the previous development, that is, new institutions do not appear, then б = 0 and TrS = в. This model states at once, that with quantity growth of new institutions the average transaction costs will increase. Certainly, the situation, when costs are reduced with introduction of new institutions, is possible. Then, the kind of function of costs dependence from the number of institutions, or the agents following the institution should be different, for example, inversely proportional. In each case this function should be formed empirically. The average transaction costs of one institution seem to be falling with the growth of institutions number, but they can increase, for the given values б and в.

Institutional planning should define value б. It is necessary to establish the kind of function of transaction costs dependence from the number of old and new, or formal and informal institutions. From the point of view of the generalized characteristic of any economic system, the defining correlation is the ratio of transaction and transformational (production) costs.

Literature

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2. Thorstein Bunde Veblen The Theory of Business Enterprise. - М: Delo (Business), 2007. - 288p.

3. Klejner G.B. Institutional Systems Evolution. - М: Nauka (Science), 2004, 240p.

4. Ronald Harry Coase An Interview at a Founding Conference of the International Society of New Institutional Economy. St-Louis, September, 17, 1997.// Quarter Bulletin of Economists Club. Issue 4. - Minsk: Propylen, 2000. - 28p.

5. Ronald Harry Coase The Firm. The Market. The Law. - М: Delo (Business), 1993. - 108p.

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