Economic functions of the state:
- * legislative regulation entrepreneurial activity and protection of competition in the marketplace;
- * use of the budget and tax policy to create social programs for the protection of such groups of the population as pensioners, students, the unemployed, the disabled, large families.
State intervention is also necessary in cases where, for various reasons, market competition and free pricing do not provide a satisfactory solution to existing problems in such areas as supporting the development of fundamental science, general education, and the training of specialists in a narrow profile in the national interest. Market mechanisms are also inappropriate in the field of defense, security public order, observance of the rights of citizens, in servicing large infrastructure complexes in the field of energy, water supply, communications, transport (especially pipelines, space), etc.
The concept of transaction costs was introduced into economic theory by R. Coase in his article "The Nature of the Firm" (1937). They include the costs associated with the search for information, the costs of negotiating, the work of measuring the properties of a product (service), the costs of specifying and protecting property rights, as well as the costs associated with overcoming the opportunistic behavior of counterparties. Political Economy 19th century actually abstracted from transaction costs. However, in the XX century. it was simply impossible not to notice them.
Transaction costs are the costs that society incurs when choosing the organizational forms of the existence of the economy, searching for the optimal scale and types of entrepreneurial firms.
Generally, there are five main forms of transaction costs:
- 1) costs of information search;
- 2) the costs of negotiating and concluding contracts;
- 3) measurement costs;
- 4) costs of specification and protection of property rights;
- 5) the costs of opportunistic behavior.
The costs of searching for information are associated with its asymmetric distribution in the market: it takes time and money to search for potential buyers or sellers. The incompleteness of the available information turns into additional costs associated with the purchase of goods at prices above equilibrium (or sale below equilibrium), with losses arising from the purchase of substitute goods.
The costs of negotiating and awarding contracts also require an investment of time and resources. The costs associated with negotiating the terms of sale, legal registration of the transaction, often significantly increase the price of the item being sold.
A significant part of transaction costs is the cost of measurement, which is associated not only with direct costs for measuring equipment and the measurement process itself, but also with errors that inevitably occur in this process. In addition, for a number of goods and services, only indirect or ambiguous measurement is allowed. How, for example, to evaluate the qualifications of a hired employee or the quality of a purchased car? Certain savings are caused by the standardization of manufactured products, as well as the guarantees provided by the company (free warranty repairs, the right to exchange defective products for good ones, etc.). However, these measures cannot completely eliminate the costs of measurement.
The costs of specification and protection of property rights are especially high. In a society where there is no reliable legal protection, cases of permanent violation of rights are not uncommon. The time and money required to restore them can be extremely high. This should also include the costs of maintaining court and government agencies who are on guard of law and order.
The costs of opportunistic behavior are also related to, although not limited to, information asymmetry. The fact is that behavior after the conclusion of the contract is very difficult to predict. Dishonest individuals will fulfill the terms of the contract at a minimum, or even evade their fulfillment (if sanctions are not provided). Such moral hazard always exists. It is especially great in conditions of joint work - team work, when the contribution of each cannot be clearly separated from the efforts of other team members, especially if the potential capabilities of each are completely unknown.
So, opportunistic is the behavior of an individual who evades the terms of a contract in order to profit at the expense of partners.
It can take the form of extortion or blackmail when the role of those team members who cannot be replaced by others becomes obvious. Using their relative advantages, such team members may demand special conditions of work or pay for themselves, blackmailing others with the threat of leaving the team.
Thus, transaction costs arise before the exchange process (ex ante), during the exchange process and after it (ex post). The deepening division of labor and the development of specialization contribute to the growth of transaction costs. Their value also depends on the dominant form of ownership in society.
State intervention in the economy, regulatory functions are also associated with high transaction costs. In a number of cases, according to R. Coase, the price of state regulation of the economy is so high that the very idea of solving economic problems from a single center turns out to be inappropriate. He believes that in future economic systems the right to exist can only be obtained by such organizational forms that are cheaper in terms of transaction costs, require less costs to obtain the same result. Benchmarking results against costs can provide insight into efficiency economic system any scale. A comparative assessment of transaction costs would make it possible to look for ways to reduce them.
In the last century, ideas appeared in the field of institutional economics that gave rise to a new scientific direction. This direction was taken by the theory of transaction costs. The concept of economic transaction, which is basic for institutional economics, was formed much earlier than the consonant concept of transaction from database theory.
A transaction is a transaction, a joint economic action carried out by agreement of the parties. Transactions range from simple, such as buying a bunch of radishes from the market, to complex transactions, such as implementing an ERP system with the help of external consultants. Complex and responsible agreements are always formalized by contracts.
A distinctive feature of a transaction is that it does not determine the sequence of actions of the parties (this is determined by technology, regulations, algorithms, procedures), but the movement of the rights and obligations of these parties. For example, the conditions and nature of the emergence of obligations and the transfer of ownership.
Transactions permeate all aspects of activity. They are implemented both on the market between legal or individuals, they are called "market transactions", and within firms between employees, they are called "intra-company transactions". Market and intra-company transactions are closely related to each other. An example of such a relationship would be the purchase of equipment. The supply of equipment to the warehouse as part of a market transaction gives rise to a chain of intra-company transactions, the first of which is the acceptance by the storekeeper of the equipment for liability. Further intracompany transactions - quality control, accounting, verification of invoices and invoices, reconciliation of debts - lead to a decision to pay for the equipment. The payment completes the market transaction and the final transfer of ownership. A firm may turn some of its internal transactions into market transactions, for example by outsourcing its IT department. Reverse actions are also possible, leading to deep integration or absorption of enterprises.
Market and intra-company transactions form single end-to-end chains. Although they are very similar, they also have significant differences. Market transactions are regulated by institutions: social traditions and legal law. The starting point for each participant in a market transaction is their property rights. Intra-company transactions are governed by the norms of corporate culture and accepted internal corporate standards. The starting point for each participant in an intercompany transaction is their responsibilities. They assumed these duties in exchange for remuneration when they got a job. Market transactions are dominated by market mechanism where equal parties agree. In intra-company - an administrative mechanism where employees form a hierarchy.
Over the past 20 years, the market transaction model has penetrated deeply into corporate governance and has given rise, for example, to forms of organization such as divisional structure, internal corporate service, or internal entrepreneurship. There were periods when the hierarchy dominated and on the basis of the administrative mechanism, not only companies, but also entire states were built.
The implementation of any transaction requires costs. Materials, goods, works and any other assets involved in the transaction must be paid. In the middle of the 20th century, economists realized that the implementation of transactions, in addition to those listed above, also requires additional specific costs. These in market transactions include, for example, the costs of negotiations, the search for a product or partner, evaluation and examination, insurance, loyalty support, litigation. This type of cost is called transaction costs.
Transaction costs are also present in intra-company transactions. The performance of any full-time standard work described in the technology, fixed in the instructions and regulations, assumes that the performer has all the necessary information, understands other employees, does not directly or indirectly cause damage to them, and has the appropriate qualifications and powers. AT real life these conditions are met only partially, which creates uncertainty in relations between employees. They are forced to seek information, to negotiate, to seek solutions, to redo work, to shirk responsibility or take it upon themselves, or, finally, to simply stop and wait for instructions. All these are transaction costs, and sometimes quite considerable.
The theory of transaction costs says, and the practice of real management confirms this, that transaction costs can significantly change both the nature of intra-company regular activities and the configuration of signed market agreements. Changes in transaction costs can lead to organizational restructuring and even redistribution of property rights. If I solve problems faster than others, then they will be solved with me and real powers will be redistributed de facto. If my transaction costs are less than those of a competitor, then it is easier for the client to work with me and he will go to me.
Among the factors for reducing transaction costs, one should especially highlight standardization, education and advanced training, and, of course, Information Technology. It is no coincidence that the growth of transaction costs of large Western companies correlates with the growth of their costs for information technology, and competitive advantages are increasingly associated efficient use these technologies.
Market and intra-company transactions form single end-to-end chains. Although they are very similar, they also have significant differences. Market transactions are regulated by institutions: social traditions and legal law. The starting point for each participant in a market transaction is their property rights. Intra-company transactions are governed by the norms of corporate culture and accepted internal corporate standards. The starting point for each participant in an intercompany transaction is their responsibilities. They assumed these duties in exchange for remuneration when they got a job. In market transactions, the market mechanism dominates, where equal parties agree. In intra-company - an administrative mechanism where employees form a hierarchy.
The essence of transaction costs. In the economic literature, there are many definitions of transaction costs (TAI) and different approaches to their analysis are known. In a narrow sense, TAI is the costs in the field of exchange associated with the transfer of property rights, in a broad sense, these are all costs in excess of the actual production costs (transformation costs, in the words of D. North).
R. Coase showed that the use of the market mechanism does not cost society free of charge, but sometimes requires high costs.
Unlike production costs, which are determined by the volume and technology of production, transaction costs arise in the process of establishing relations between market agents. To carry out a market transaction, it is necessary: to identify with whom one would like to conclude transactions; spread the word that someone wants to enter into a deal and on what terms; conduct negotiations leading to a deal; organize an investigation to make sure that the terms of the contract are observed, etc. 6 R. Coase initially attributed to TAI only "the costs of using the price mechanism." Later, they began to include the costs associated with the use of administrative control mechanisms. With such an extended interpretation, the concept of transactions is applicable to relations that develop both between organizations and within them.
D. North noted that the cost of information is “the key to understanding the costs of transactions, which (costs) will be made up of the costs of estimating useful properties the object of exchange and the costs of ensuring rights and coercion to their observance” 7 . These costs serve as a factor determining the structure and dynamics of socio-political and economic institutions.
If we consider the economy as a life support system, then, following CJ Arrow, transaction costs can be characterized as the costs of operating the economic system 8 .
In domestic studies under transaction costs are understood as "costs of resources (money, time, labor
etc.) necessary for the alienation and appropriation of property rights and freedoms accepted in society” 9 . Further, the authors of the "Introduction to Institutional Analysis" believe that two points are essential to substantiate TAI: the mismatch of the economic interests of the interacting parties, as well as the uncertainty consisting in the fragmentation (and distortion) of information, and the limited capabilities of agents for processing this information. Therefore, TAI are interpreted as the costs of coordinating the activities of economic agents and removing the distribution conflict between them. This and similar approaches interpret transaction costs in the broad sense of the word.
Types of transaction costs. In modern economic theory offers a variety of options for both determining transaction costs and their classifications.
K. Menard notes that transaction costs are understood as “the costs of the functioning of the exchange system or ... what it costs to use the market to ensure the allocation of resources and transfer property rights” 10 . Conventionally, he distinguishes four groups of TAI.
1. Costs of isolating due to the problem of inseparability. In joint activities, it is difficult to measure the productivity of each factor of production; detailed differentiation is impossible when determining fees for certain types of services (for example, transport).
2. Information costs, including the costs of coding, signaling, decoding and training in the use of the information system.
3. Costs of market scale, in which the establishment of "trust" is both problematic and too costly when it grows.
4. Costs of behavior associated with the problem of selfish behavior of agents in a competitive situation (for example, cheating), which often turns into benefits for the deceivers and losses for the deceived.
According to the concept of P. Milgrom and J. Roberts, transaction costs include costs of coordination and motivation.
By the time of the contracting process, transaction costs are divided by D. North and J. Wallis into three categories. Preliminary (ex ante) TAI refers to the period before the transaction, for example, the collection of information about prices, possible alternatives, the reliability of the counterparty, etc. The second part of the TAI (ex interim) falls at the time of the transaction and the exchange process, such as negotiating and concluding a contract, obtaining notarized documents, insurance, settlements, etc. The third part refers to the period after the conclusion of the transaction (ex post), for example, the costs of protecting contracts, monitoring their implementation, quality control, etc.
E. Furubotn and R. Richter rightly classify transaction costs depending on the area in which they arise.
First, market transaction costs, including the costs of searching and processing information, the costs of negotiating and making decisions, the costs of control and monitoring. It should be noted that this classification of market transaction costs corresponds to the three stages of the contracting process identified in the North-Wallis classification.
Secondly, managerial transaction costs, including the costs of developing, implementing, maintaining and changing the organizational structure.
Thirdly, political transaction costs, including the costs of creating, maintaining and changing the formal and informal political organization of the system, as well as ensuring the functioning of political system, including institutions of law, defence, justice, transport and education.
Based on the generalization of numerous studies, it is usually distinguished five functional groups of transaction costs 11 .
1. Information search costs. They are associated with the search for information about sellers, buyers and prevailing prices, as well as with losses due to the incompleteness and imperfection of the information found.
2. The costs of negotiating and concluding contracts. Negotiations, conclusion and execution of contracts require certain costs, which often increase the price of the goods. In addition, this includes losses due to unsuccessfully concluded, poorly executed and unreliably protected agreements.
3. Measurement costs. This includes the costs of measuring equipment, the cost of carrying out the measurement process itself, the implementation of measures to protect against measurement errors, and, finally, the losses from these errors. These costs are reduced by product standardization, firm guarantees, trade marks and other measures.
4. Costs of specification and protection of property rights.
Included in this category are the costs of maintaining the judiciary and government agencies in charge of law and order, the cost of resources to restore violated rights, as well as the losses from poor specification and unreliable protection of property rights.
5. Costs of opportunistic behavior. The term "opportunistic behavior" was introduced by O. Williamson and means unscrupulous behavior of an individual that violates the terms of a deal and is aimed at obtaining unilateral benefits to the detriment of a partner (see section 2.2). These costs relate to post-contract behavior and are especially characteristic of teamwork, when the potential of each is completely unknown. There are two main forms of post-contract opportunism, shirking and extortion. Therefore, the costs of opportunistic behavior consist of the loss in efficiency associated with it, as well as the costs necessary to limit such behavior.
Transaction costs can appear in explicit and implicit forms. In the second case, they can be so large that they block the possibility of a transaction, and they cannot be registered.
Transaction costs arise when decisions are made at the individual and collective levels. For example, operating costs legal system fall on all members of society, and the costs of legal protection of a particular transaction - on its participants.
There are such fixed and variable transaction costs. Fixed transaction costs are incurred once for a certain number of transactions. For example, the costs of establishing and protecting property rights. Variable transaction costs are incurred for each transaction separately. For example, the costs of preparing and implementing a specific contract.
In general, the total costs of society are equal to the sum of transformation costs, i.e. costs associated with converting costs into finished products, and transaction costs.
The former are determined by technological, and the latter by institutional (legal) factors. However, both parts of total costs are closely related and, within certain limits, are interchangeable. AIM influences the choice of mode of production, and changes in technology and the level of transformation costs can affect the number of market transactions and other economic processes. Based on the contract paradigm, it can be specified that all contracts of the company are divided into external and internal, and they correspond to two types of costs. These are transactional and managerial (organizational) costs. Transaction costs are the costs of securing the fulfillment of external contracts, while management costs are the costs associated with internal contracts. Management costs are not considered in detail in this chapter, but they include the costs of monitoring the implementation of internal contracts, losses due to poor performance of contracts, etc.
From this perspective, the firm and the market are alternative modes of contracting. The market is characterized as a network of external contracts, while the firm is characterized as a network of internal contracts. The choice between external and internal transactions depends on the ratio of the costs of their use. The higher the TAI compared to management costs, the more likely it is that external transactions will be translated into internal transactions and the production of goods by the firm rather than through the market. In addition to the transaction costs of the micro level, it is necessary to take into account the TAI of the macro level, which are the costs of managing and operating the economic system as a whole.
Each organizational form has its own structure of transaction costs. Market structures tend to economize on the costs of opportunistic behavior, but can generate high costs of measuring product quality. Administrative institutions reduce the cost of negotiation, use economies of scale, but within organizations there is a threat of shirking, and between organizations there is a danger of extortion.
Measurement of transaction costs. The measurement of transaction costs is associated with certain problems. If transactions are purely market in nature, then they can be measured. However, TAI related to queuing, consumption rationing, bribery, etc. cannot be measured. Known methods of direct and indirect evaluation of TAI. An attempt to directly measure TAI by the share of the transaction sector in US GNP for 1870–1970. owned by J. Wallis and D. North. In the work of 1986, the authors take into account only the market component of TAI and call it transaction services. The total volume of transaction services consists of two parts. Firstly, these are the services of the transaction sector, which includes wholesale and retail trade, insurance, banking, etc. Secondly, these are transactional services, but provided within the “transformation sector”, i.e. these are the costs of the management apparatus, the organization of sales and supplies, etc. in various sectors of this sector. In addition, the authors singled out the private and public transaction sectors.
According to calculations using national accounts, the share of transaction services of the private sector in US GNP increased from 23% in 1870 to 41% in 1970, and the public sector - from 3.6% in 1870 to 13.9% in 1970 g., which in total is an increase from 26.1 to 54.7%. Part of this growth was due to the movement of TAI from the non-market to the market, but the other part represented the real investment of resources. The authors identified three factors for the increase in the transaction sector in the US economy: 1) deepening specialization and division of labor, which increases the total volume of exchange transactions; 2) technological progress in industry and transport, accompanied by an increase in the size of firms; 3) strengthening the role of the government in its interaction with the private sector 12 .
H. Demsetz in his work "Costs of Transaction" (1968) directly measures and evaluates the costs of using organized financial markets, taking into account the difference between the rates of sale and purchase, together with the remuneration of brokers. In contrast, O. Williamson in 1985 uses an indirect method. It draws attention to certain relationships between specific investments (such as the types of contracts used) when measuring TAI. The main idea here is that the characteristics of the institutional structure (and property rights) strongly influence the level of transaction costs. P. Joskow, following a similar approach, shows the importance of institutional arrangements for TAI in a 1985 paper based on the experience of electricity generation enterprises 13 .
Measured or unmeasured transaction costs are of great value. Without them, neither economic behavior nor institutional arrangements can be adequately understood. Positive TAI results in the following consequences 14:
1) interfere, and in particular cases completely block the formation of markets;
2) prevent the full realization of the mutual benefits of the exchange, since it is possible to refuse those benefits that should be directed to ensuring the exchange, and this hinders the receipt of economic profit;
3) interfere with the implementation of the principle comparative advantage, which underlies trade and hence economic growth;
4) make it difficult to search for new opportunities for using known resources or discovering new resources with given alternatives for their use;
5) prevent changes in the existing rules of the game, acting as the costs of institutional transactions.
In general, the concept of transaction costs is of key importance in the new institutional economy. It becomes possible to explain the evolution of institutions, including changes that depend on the previous path of development. Savings in transaction costs are seen as an incentive for institutional transformation.
Market failures. Sometimes the market not only does not eliminate, but, on the contrary, is able to exacerbate undesirable trends or so-called "failures" in the economy. Market failures- these are areas where, for various reasons, market competition and free pricing are inappropriate. Most often, these are the spheres of social or municipal consumption, the spheres of natural monopolies, maintenance of infrastructure complexes of energy networks or water supply. Market relations are also not appropriate in the field of social protection of the disabled, unemployed, large families and other groups of the population.
Market failures also include the sphere of maintaining equilibrium. national economy, regulating the ups and downs of industrial cycles, employment and inflation. Imperfections, "failures" of the market are compensated by the corresponding economic functions of the state. These include:
Legislative regulation of entrepreneurial activity and protection of competition in the market;
The use of budgetary and tax policy to create social programs to protect such groups of the population as pensioners, students, the unemployed, the disabled, families with many children.
State intervention is also necessary in cases where, for various reasons, market competition and free pricing do not provide a satisfactory solution to existing problems in such areas as supporting the development of fundamental science, general education, and the training of specialists in a narrow profile in the national interest.
In addition, market mechanisms are not appropriate in the field of defense, protection of public order, observance of the rights of citizens, in the maintenance of large infrastructure complexes in the field of energy, water supply, communications, transport (especially pipelines, space), etc.
The measure of state intervention in the economy and transaction costs. Is there a criterion by which it would be possible to determine the measure of the combination of market mechanisms and government intervention in the economy? The answer to this question has a long history. So, almost three centuries ago, the Russian author I. T. Pososhkov, in his Book of Poverty and Wealth (1724), substantiated the need to improve the domestic economy. His ideas largely anticipated the content of the reforms of Peter I. Pososhkov’s scientific work was half a century ahead of Smith’s similar work “A Study on the Nature and Causes of the Wealth of Nations” (1776), which is also devoted to the idea of searching for a better and richer economic system during the period of the initial accumulation of English capital .
The search for an effective economic system has not lost its relevance today. It affects countries not only with a reformed, but also with a developed, quite prosperous at the moment economic system. A number of outstanding modern studies on the efficiency of the economic system round out the idea of transaction costs. Nobel laureate 2001 Ronald Coase.
Transaction costs- these are the costs that society incurs when choosing organizational forms for the existence of the economy, searching for the optimal scale and types of entrepreneurial firms. They are not always visible to an outside observer, but participants in the economic process are forced to reckon with them, since the size of transaction costs can often exceed the economic effect of entrepreneurship. State intervention in the economy, regulatory functions are also associated with high transaction costs, although it was previously believed that it costs society almost “for nothing”.
Coordinating the economy from a single center is an extremely expensive process, and the price of this coordination increases as the scale of the economy as an object of coordination grows.
Questions to test and consolidate knowledge:
1. Describe the five main functions of money in exchange, which were systematized by K. Marx in his work "Capital" (1872).
2. What is competition?
3. What is a competitive firm?
4. Complete the sentence: "The division of labor and industry specialization allow you to expand ...".
5. What is a market?
6. What are "failures" of the market? How are they compensated by the state?
List of used literature:
1. Borisov E.F. Economic theory: a textbook for university students / E.F. Borisov. - 2nd ed., revised. and additional - M .: Prospect, 2010. - 544 p.
2. Nosova S.S. Economic theory: textbook / S.S. Nosov. –M: KNORUS, 2008.
3. Kulikov L.M. Economic theory: A textbook for university students. –M.: Prospekt, 2005. -432 p.
Federal Agency for Education
Nizhny Novgorod State University N.I. Lobachevsky
15 faculty of distance learning
Specialty "Finance and Credit"
Course work
subject: "Economic theory"
on the topic: "The market and transaction costs"
Completed:
Group student: 15-43FC/3
Correspondence form of education
Fedorova A.A.
________________
Checked:
Efimova L.A.
Nizhny Novgorod
2007
Introduction…………………………………………………………………………...3
1. Market…………………………………………………………………………....5
1.1. Advantages and disadvantages of the market mechanism…………………….…5
2. Transaction costs………………………………………………………13
2.1. Types of transaction costs (according to R. Coase)………………………………13
2.2. Types of transaction costs (according to O. Williamson)…………………….16
2.3. A way to minimize transaction costs…………………………….17
2.4. Transaction cost reduction strategy…………………………..19
3. Coase theorem……………………………………………...…………………..20
3.1. Theoretical significance of the Coase theorem………………………………………23
Conclusion………………………………………………………………………..25
List of used literature……………………………………………….27
Application……………………………………………………………………….28
Introduction
If we ask ourselves which of the concepts used in modern economic theory is fairly new and at the same time the most widely used , then, most likely, it will be just transaction costs. In a certain sense, we can consider that this concept is the key point of the new institutional theory.
The concept of transaction costs helps explain the need for existence, the internal structure and evolution of the market. (
transaction cost). P .Coase showed that the use of the market mechanism does not cost society free of charge, sometimes requiring very impressive costs. They were called transactional (from lat. transaction - deal). Unlike production costs, which are determined by the volume and technology of production, transaction costs arise in the process of establishing relations between market agents.According to the most general definition, " transaction costs is the friction equivalent in mechanical systems". For example,
Y.Kornay, right uses the term "friction" to describe factors that impede the prompt conclusion of transactions between economic agents. Getting rid of the analogy with physics, we will classify as transactional any costs associated with the coordination and interaction of economic entities. Consequently, all costs associated with the exchange and protection of powers are transactional.Transaction costs - all costs associated with the exchange and protection of entitlements.
Within the framework of institutional theory, there is no unity in explaining the nature of transaction costs. There are at least three options for explaining where and why transaction costs arise when making a transaction: the approach of the theory of transaction costs, the approach of the theory of public choice and the approach of the theory of agreements. The lack of unity on the nature of transaction costs is significant, especially considering that neoclassical economic theory took into account the existence of only one type of cost - production. Therefore, the issue of transaction costs is inevitably associated with a change in the postulates of neoclassicism, relating either to its "hard core" or to its "protective shell".
Transaction costs - the central explanatory category of all neo-institutional analysis. The orthodox neoclassical theory considered the market as a perfect mechanism, where there is no need to take into account the costs of servicing transactions. The key importance for the operation of the economic system of transaction costs was realized thanks to R. Coase's article "The Nature of the Firm" (1937). He showed that in every transaction it is necessary to negotiate, exercise supervision, establish relationships, resolve differences.
Initially, transaction costs were defined by R. Coase as "the costs of using the market mechanism." Later, this concept acquired a broader meaning. It began to denote any kind of costs that accompany the interaction of economic agents, regardless of where it takes place - in the market or within organizations, since business cooperation within hierarchical structures is also not free from friction and losses. According to the most recognized definition of K. Dalman, transaction costs include the costs of collecting and processing information, negotiating and making decisions, monitoring and enforcing contracts. The introduction of the idea of positive transaction costs into scientific circulation was a major theoretical achievement.
1.1. Advantages and disadvantages of the market mechanism
The market as a certain mechanism for the distribution and use of limited resources, based not on coercion and orders (as a rigidly centralized system), but on voluntary exchange, has a number of obvious advantages.
The market mechanism with a high degree of efficiency solves the problem of producing goods and services necessary for consumers. Through the market, there is a spontaneous adaptation of the volume and structure of production to the volume and structure of social needs, the distribution of production factors between various industries, i.e. The question is what to produce and how much. The market economy, in principle (with some very rare exceptions), does not know such phenomena traditional for the command-administrative system as shortages, shortages of goods, queues, etc.
In contrast to the costly, wasteful nature of the command-administrative system, with great difficulty, slowly and painlessly introducing the achievements of scientific and technological progress, the market system strives to use the available resources in the most efficient way. A manufacturer in conditions of fierce competition can strengthen his position, expand sales markets, and increase profits, mainly by reducing costs, increasing labor productivity, and improving the technical level of production. Using the latest achievements of science and technology, the manufacturer receives, although temporary, but significant competitive advantages by reducing individual costs and obtaining quasi-rent. Thus, the market mechanism itself creates permanent incentives to improve production efficiency.
The command-administrative system, proclaiming in words the principle of distribution according to work, in practice exercises strict centralized control over the level of income, which inevitably gives rise to a predominantly egalitarian distribution that does not create proper incentives for work. From this point of view, the market mechanism has an undoubted advantage, since it establishes a clear relationship between the real contribution of the creation of the goods necessary for the consumer and the amount of income received. The market adequately rewards those who work intensively and efficiently, strictly differentiates the income of each, and thereby constantly maintains effective incentives to work.
It should be emphasized that in a market economy there is no production for the sake of production. The consumer is at the center of the market, production is constantly oriented towards him. The main task of any commodity producer is to find a consumer of his products on the market, to sell him a product. The well-being of the manufacturer ultimately depends on how successfully this task is solved. Therefore, it is the consumer, using the money at his disposal, that ultimately has a decisive influence on what is produced and where the production goods go.
The market mechanism performs its functions most effectively in conditions of economic freedom, which implies freedom of entrepreneurship, freedom of movement of resources in different areas of application, freedom of choice of sellers and buyers, freedom of pricing. This means that an important advantage of a market economy is that it is a self-regulating system. It is able to function effectively without the direct intervention of the state. This system has a certain internal order and obeys certain laws. Millions of varieties of goods and services are produced by millions of people without centralized control, while balancing supply and demand.
Finally, obviously, the main advantage of the market system is that it is not some speculative scheme, artificially constructed and forcibly implemented. The market, which originated several millennia ago, developed naturally, went through a difficult path of development, changing, adapting to changing conditions, and thus proved its viability. In this sense, the market economy can be regarded as an achievement of human civilization, as the most efficient form of organization of social production known so far. Moreover, the very fact of not only the successful centuries-old functioning of the market mechanism, but also the dominance of market relations today in the vast majority of countries on Earth also testifies to the naturalness, normality of market relations in the sense of their correspondence to human nature (at least as long as a person is such what it is).
At the same time, it would be a big mistake to consider the market as an ideal mechanism, devoid of any shortcomings and contradictions.
First of all, the tendency to establish an equilibrium, inherent in the market mechanism, makes its way through a constant violation of the equilibrium. Moreover, we are talking about the violation of not only partial equilibrium in individual markets, but also the general equilibrium between aggregate demand and aggregate supply. In other words, The market economy, although dynamic, is not stable enough. This macroeconomic instability of the market system has a number of manifestations: unsustainable rates of economic growth and the cyclical nature of development; underutilization of resources and underemployment; general price instability and inflation. It should be emphasized that although market self-regulation mechanisms in each specific case are capable of overcoming crisis tendencies in the economy, however, in general, the market system is characterized by periodic fluctuations in the volume of the national product, employment and prices. Moreover, these fluctuations are the result of not only external factors, but also the imperfection of the market mechanisms themselves.
As already noted, one of the mandatory elements of the market mechanism, its driving force is competition. However within the market system itself, processes take place that can significantly weaken the forces of competition. First, although from a social point of view, competition is more than desirable, each individual entrepreneur seeks to get rid of the severe restrictions that it imposes on him. This gives rise to a tendency towards conspiracies between producers, the use of the state in their own interests, and so on. Secondly, technological progress, constantly stimulated by the market mechanism, in many industries requires, from a purely technological point of view, large-scale production, which leads to an increase in the size of firms - both absolute and relative to the size of the market. The reduction in the number of firms and the increase in their size inevitably give rise to a tendency to monopolize the market. Thirdly, the very logic of the development of competition leads to monopolization, during which some producers strengthen their positions, others go bankrupt, the stronger ones subjugate and absorb the weaker ones. This is how the process of centralization of production and capital takes place, which in turn creates favorable conditions for the monopolization of markets.
Thus, the market inevitably gives rise to a monopoly within itself, and the monopoly, dominating the market, concentrates economic power in its hands and gets the opportunity to set monopoly prices and extract monopoly superprofits.
The market mechanism as a whole allocates scarce resources efficiently. However, the market is a mechanism that bases its activities on value indicators expressed in money. Therefore, distribution efficiency is achieved only if all the effects (benefits, costs) generated by the production and consumption of a particular good
can be taken into account by the market, i.e. is reflected in the price.
However, in some cases, the market system is faced with the so-called external effects (externalities), which are the costs and benefits associated with the production or consumption of a good, but falling on the share of persons who are not participants in this market transaction. These effects do not find adequate market monetary value, since they are directed to third parties and, therefore, are not reflected in any way in the price of this good. In the presence of such externalities, the market performs its function of allocating resources inefficiently.
Exist negative externalities and positive externalities. Negative externalities arise when the production or consumption of a good generates uncompensated costs for a third party. Environmental pollution is a classic example of negative externalities. The producer, polluting the atmosphere with toxic smoke or releasing industrial effluents into the river, transfers, as it were, part of the costs directly related to the production of this product for the population, but does not compensate them in any way. In this case, the actual costs of the producer, taken into account in the price, turn out to be less than the full costs, taking into account the negative consequences of pollution.
Figure 1 (see Appendix 1) graphically shows the impact of negative externalities on resource allocation. If non-reimbursable costs are T, then the actual supply curve
S shifts to the right of the supply curve S T, which includes all costs. Real equilibrium output Qe is greater than the optimum level. Q o, and the equilibrium price Pe is below the optimal price Po. Thus, the market does not catch negative external effects, directs too many resources into the production of this product.The market also faces the problem of positive externalities, when the production or consumption of a good generates uncompensated benefits for a third party. For example, health or education services benefit not only those who directly receive and pay for these services, but also society as a whole. And this means that the true marginal utility of a given good from the point of view of society is higher than the marginal utility from the point of view of the individual paying for this good. In other words, the market in the form of money seems to underestimate the usefulness of this good, and, consequently, underpays for it. Figure 2 (see Appendix 2) illustrates this graphically. Real demand curve
D understates total amount benefits received by society from the consumption of this good (which is shown by the curve DT ). As a result, the equilibrium supply Qe and the equilibrium price Pe turn out to be less than the optimal quantity Qo and optimal price Ro. Thus, in the presence of positive externalities, the market directs insufficient resources for the production of this good.If, as a result of the existence of externalities, the market gives an inaccurate monetary estimate of costs and benefits, and allocates resources inefficiently, then the so-called public goods the market system does not intend to produce at all, because he cannot give them a monetary value. Ordinary goods and services are affected exclusion principle, because they come into use only to those who are able to pay the necessary price for them. In other words, in order to enjoy such benefits, they must be bought. The consumption of public goods becomes possible not as a result of the purchase, but as a result of the very production of such goods. To the number public goods include national defense, public order, fire service, street lighting, lighthouses, flood control, etc.
These benefits are characterized the principle of non-excludability of consumption. This means that the benefits of public goods can be received by people who did not bear any costs for their production and did not participate in their payment. At the same time, it is difficult to find a cheap way to separate non-payers (“hares”) from those who paid for the consumption of such goods, since the principle of exclusion does not apply here, and everyone will hope to receive public goods for free, then there will be no incentives for private business to create these goods. Thus, the market system does not allocate resources for the production of public goods. Since the need for such goods is significant, the only way out of the situation can be the intervention of the state and the financing of their production through a system of compulsory collections in the form of taxes from all members of society.
It should be emphasized that in a number of cases (including the production of public goods) attempts to solve economic problems with the help of purely market mechanisms involve excessive costs. The fact is that the operation of the market as a system of voluntary cooperation between independent economic entities, among other things, generates already known transaction costs that arise when negotiating and monitoring the implementation of exchange decisions. In most ordinary transactions for the sale of goods and services, these costs are relatively insignificant and do not outweigh the benefits that each of its participants receives from the transactions. In this case, the market mechanism works effectively.
Theoretically, one can also imagine a solution to the problem of the production of public goods (for example, national defense) on the basis of market agreements on voluntary exchange. But in this case, the transaction costs will increase to such enormous proportions that none of the participants in this exchange will agree to bear them. And one of the main reasons for the sharp increase in transaction costs is the problem of "free riders" ("hares"). In this case, the coercion resorted to by the state when intervening in the economy contributes to minimizing transaction costs.
Speaking about the shortcomings of the market system, social problems are usually emphasized. Really, the market generates a significant income differentiation, property stratification of the population. But since goods in a market economy go where there is more money, the market may direct some people to starve for lack of income, and others to earn excessive incomes and arrive in luxury. In addition, the market imposes equally stringent requirements on everyone, but different people are in a different situation: in any society there are quite numerous socially vulnerable layers - the sick, the disabled, orphans, etc., who objectively cannot participate in the competitive struggle. The market system itself does not care about these people and may leave them without a livelihood.
However, this formulation of the question is not quite specific. After all the market is a socially neutral mechanism, designed to solve the economic problems of the distribution of limited resources. And, as has already been shown, the market copes with this task quite effectively. But one cannot demand that the economic mechanism also solve social problems. This function should be assumed by the state and pursue an active social policy.
In general, the presence of significant shortcomings in the market mechanism leads to the need for its regulation, mainly through state intervention in economic life. The main functions of the state are to conduct macroeconomic policy (countercyclical, anti-inflationary, full employment policy) and antimonopoly policy, to provide public goods and regulate externalities, as well as to solve social problems.
2. Transaction costs
2.1. Types of transaction costs (according to R. Coase)
Transaction costs - any losses arising from the ineffectiveness of joint decisions, plans, contracts and established structures. Transaction costs limit opportunities for mutually beneficial cooperation.
Developing Coase's analysis, supporters of the transactional approach have proposed various classifications of transaction costs (costs). According to one of them, there are:
1. Information search costs. Before a transaction is made, one must have information about where potential buyers or sellers of consumption goods or production factors can be found, and what are the current prices. Costs of this kind are made up of the time and resources required to conduct a search, as well as losses associated with the incompleteness and imperfection of the information received.
2. The costs of negotiating and concluding contracts. The market requires the diversion of significant funds for negotiations on the terms of the exchange, for the conclusion and execution of contracts. The more participants in the transaction and the more complex its subject, the higher these costs. Losses due to badly negotiated, poorly designed and unsecured agreements are a powerful source of these costs.
3. Measurement costs . Any product or service is a set of characteristics. Only a few of them are inevitably taken into account in the exchange, and the accuracy of their assessment is extremely approximate. Sometimes the qualities of a product of interest are generally immeasurable, and one has to use intuition to evaluate them. The purpose of their economy due to such forms of business practices as warranty repairs, company labels.
4. Costs of specification and protection of property rights. This category includes the costs of maintaining courts, arbitration, state bodies, the time and resources required to restore violated rights, as well as losses from their poor specification and unreliable protection.
5. Costs of opportunistic behavior. The term "opportunistic behavior" was introduced by O. Williamson. This is the name of dishonest behavior that violates the terms of the transaction or aimed at obtaining unilateral benefits to the detriment of the partner. Under this rubric fall various cases of lies, deceit, idleness at work, neglecting the obligations assumed. There are two main forms of opportunism, the first of which is typical for relations within organizations, and the second for market transactions.
shirking (shirking)represents work with less return and responsibility than it should be under the terms of the contract. When there is no possibility of effective control over the agent, he may begin to act on the basis of his own interests, which do not necessarily coincide with the interests of the firm that hired him. The problem becomes especially acute when people work together ("team") and it is very difficult to determine the personal contribution of each.
Extortion (hold-up)observed in those cases when any of the agents made investments in specific assets. Then his partners have the opportunity to claim a part of the income from these assets, otherwise threatening to break off relations (for this purpose, they may begin to insist on revising the price of the product received, improving its quality, increasing the volume of supplies, etc.). The threat of "extortion" undermines incentives to invest in specific assets.
6. Costs of "politicization". This general term can be used to designate the costs that accompany decision-making within organizations. If the participants are endowed with equal rights, then decisions are made on a collective basis, by voting. If they are located at different levels of the hierarchical ladder, then the higher ones unilaterally make decisions that are mandatory for the lower ones.
They arise due to the fact that the entrepreneur not only chooses between the market and the contract system or non-market relations within market systems, but also takes into account the possibility of making this transaction part of the intra-company hierarchy.
These include the costs arising in connection with the creation, improvement and development of the intra-company structure (we can talk about the costs of intra-company management and coordination of the activities of all structural divisions of the company within the framework of the company-wide strategy).
What, then, will be the result of using other (non-market) forms of economic organization (contract system and intra-company hierarchy)? Without an answer to this question, we will not be able to assert that transaction costs (external and internal) are objective. Recall that when comparing it is necessary that the result exceeds the costs. Only then do we make a choice in favor of this type of economic organization.
Table 1 (see Appendix 3) brings together all the possible types of economic organizations from which the entrepreneur makes a choice, with the allocation of costs and results in each, the correlation of which underlies the choice (manager's decision).
It can be seen from the table that, on the one hand, costs are growing (on the cost side), and on the other hand, transaction protection guarantees are growing (on the result side). The entrepreneur makes a specific choice, comparing costs and results. The alternative he prefers provides him with a significant (compared to others) excess of results over costs. You can think of this as a rule for choosing the protection of a transaction.
Transaction costs are zero, which means:
· Everyone knows everything and learns new things instantly and unambiguously. Everyone understands each other perfectly, that is, no words are needed.
· Everyone has always agreed on expectations and interests. When the conditions change, the agreement is instantaneous. Any opportunistic behavior is excluded.
Comparison of the pricing system, which includes liability for damage from negative externalities, with the pricing system, when there is no such liability, led R. Coase to the seemingly paradoxical conclusion that if the participants can agree on their own, the costs of such negotiations are negligible (transactional costs are equal to zero), then in both cases, under conditions of perfect competition, the maximum possible value of production is achieved.
R. Coase gives the following example . In the neighborhood there is an agricultural farm and a cattle ranch: the farmer grows wheat, and the cattle breeder breeds cattle, which from time to time bleed crops on neighboring lands. There is an external effect. However, as R. Coase shows, this problem can be
y hastily resolved without the participation of the state. If the rancher is liable for the damage, two options are possible: “either the rancher will pay the farmer for not tilling the land, or he will decide to rent the land himself, paying the farmer for not tilling the land a little more than the farmer pays (if the farmer rents the farm himself), but the end result will be the same and will mean maximizing the value of production.”If there is no liability for damage, the allocation of resources is the same as before. The only difference is that now the payments will be made by the farmer. However, “the end result (which maximizes the value of production) does not depend on the legal position if the price system is assumed to work without cost.” With zero transaction costs, both the farmer and the pastoralist will have economic incentives to increase the value of production, since each of them will receive their share of the increase in income. However, when transaction costs are taken into account, the desired result may not be achieved. The fact is that the high cost of obtaining the necessary information, negotiating and litigation can exceed the possible benefits of concluding a deal. In addition, when assessing damage, significant differences in consumer preferences cannot be ruled out (for example, one estimates the same damage much more than another). To account for these differences, a caveat regarding the income effect was later introduced into the formulation of the Coase theorem.
Experimental studies have shown that the Coase theorem is true for a limited number of participants in the transaction (two or three). With an increase in the number of participants, transaction costs increase sharply, and the assumption of their zero value ceases to be correct.
It is curious to note that the Coase theorem proves the value of transaction costs “by contradiction”. In reality, they play a huge role, and it is surprising that neoclassical economic theory did not notice them at all until recently.
3.1. Theoretical significance of the Coase theorem
So, several important conclusions follow from the Coase theorem:
First, that external effects are not one-sided, but double-edged. Factory smoke is detrimental to nearby farms, obviously as the industrialist imposes additional costs on farmers without their consent. He gains benefit by harming others without having the right to do so. But, on the other hand, the ban on emissions turns into losses for the owner of the factory, and, therefore, for the consumer of the product. Therefore, from an economic point of view, it should not be about “who is to blame”, but about how to minimize the amount of cumulative damage.
Secondly, the Coase theorem reveals economic meaning of property rights. Their clear distribution among business entities leads to the fact that all the results of the activities of each entity relate only to him, as a result of which any external effects become internal. That's why main function property rights is to provide incentives for greater internalization of externalities. A clear distribution of property rights leads to minimization of external effects.
Thirdly, the Coase theorem removed the charge from the market about its “failures”. According to R. Coase, the key to successful work markets have transaction costs. If they are small, and property rights are clearly distributed, then the market itself is able to eliminate externalities: interested parties will be able to independently come to the most rational solution. In this case, it will not matter who exactly has the property right, say, farmers to clean air or a factory owner to pollute it. The participant who is able to derive more benefit from the possession of the right will simply buy it out from the one for whom it is of less value. For the market, it is not important who owns this resource, but that at least someone owned them. Then there is an opportunity for market transactions with this resource. The very fact of the existence of property rights and their clear distinction more important than the question about endowing them with one, and not another participant.
Conclusion
Let's summarize. The operation of the market as a system of voluntary cooperation between independent economic entities, among other things, generates transaction costs that arise when negotiating and monitoring the implementation of exchange decisions. In most ordinary transactions for the sale of goods and services, these costs are relatively insignificant and do not outweigh the benefits that each of its participants receives from the transactions. In this case, the market mechanism works effectively.
Theoretically, one can also imagine a solution to the problem of the production of public goods (for example, national defense) on the basis of market agreements on voluntary exchange. But in this case, the transaction costs will increase to such enormous proportions that none of the participants in this exchange will agree to bear them. And one of the main reasons for the sharp increase in transaction costs is the problem of "free riders" ("hares"). In this case, the coercion resorted to by the state, intervening in the economy, helps to minimize transaction costs.
When studying transaction costs, it is necessary to take into account that they exist in any real economic system, just as in any system there is uncertainty and opportunistic behavior of economic agents. Transaction costs are non-invariant with respect to the efficiency of the final allocation of resources, if the circle of participants in the exchange does not coincide with the circle of economic agents affected by the exchange, whose economic interests must be taken into account. This circumstance requires a particularly careful interpretation of the results of estimating the value of transaction costs.
When evaluating the effectiveness of one or another institutional innovation, as well as the institutional structure being formed, one should use the criterion of minimizing production costs, rather than transaction costs, which, in turn, involves studying the dependence of transaction costs not only on the activities of institutions and organizations, but also from technology.
Thanks to the transactional approach, modern economic theory has become more realistic, discovering a wide range of business life phenomena that had previously completely fallen out of its field of vision.
List of used literature:
1. Economics: Textbook. 3rd ed., revised. and additional / Ed. Dr. Econ. Sciences prof. A.S. Bulatov. - M.: Jurist, 2000
2. Course of economic theory. Ed. prof. Chepurina M.N., prof. Kiseleva E.A. - Kirov: Vyatka Publishing House, 1994
3. Nureev R. M. Course of microeconomics: Textbook for universities. - M.: Norma, 2004
4. Ivashkovsky S.N. Microeconomics - M .: "Case", 2001
5. Galperin V.M., Ignatiev S.M., Morgunov V.I. Microeconomics, v.1, - St. Petersburg: Ek. School, 1994
6. Selishchev A.S. Microeconomics. Market analysis. price theory. Market and society. Textbook for high schools. - Publishing house "Peter", 2002
7. Malakhov S. Transaction costs in Russian economy// Issues of Economics - 1997.- No. 7
8. Malakhov S. Transaction costs and macroeconomic balance // Questions of Economics. - 1998. - No. 11.
9. Kokorev V. Institutional transformations in modern Russia: analysis of the dynamics of transaction costs // Questions of Economics. - 1996.-No. 12.
Expenses . Equal to 0, market transactions are free.
Appendix 4
table 2
Classification of transaction costs.
Course of economic theory. Edited by: prof. Chepurina M.N., prof. Kiseleva E.A. Kirov Publisher: "Vyatka" 1994, p.141. Course of economic theory. Edited by: prof. Chepurina M.N., prof. Kiseleva E.A. Kirov Publisher: "Vyatka" 1994, p.142.
Course of economic theory. Edited by: prof. Chepurina M.N., prof. Kiseleva E.A. Kirov Publisher: "Vyatka" 1994, p.143.
Course of economic theory. Ed. prof. Chepurina M.N., prof. Kiseleva E.A. - Kirov: Vyatka Publishing House, 1994, p. 147. (R. Coase, op. cit. p. 17)
Course of economic theory. Ed. prof. Chepurina M.N., prof. Kiseleva E.A. - Kirov: Vyatka Publishing House, 1994, p. 147.