Seminar 2 Ins,tu,ons and Transac,on costs (TrC)
Plan • Some basics • TrC and quality of ins7tu7ons • Report 1 • Es7ma7on of TrC
– How we can decrease them?
• Problem 1: monitoring costs
Basic ideas • TrC are costs that accompany rela7ons between
economic agents • Numerous defini7ons
– “the costs of running the economic system” (Arrow 1974) – “the costs of measuring the valuable aNributes of what is
being exchanged and the costs of protec7ng rights and policing and enforcing agreements” (North 1990)
– “TrC are funny things: the most important of them exist not in reality, but in reali7es that have been avoided, in worlds that have not come to be” (Buckley and Chapman 1997)
Basic ideas • What causes TrC?
– Bounded ra7onality – Costly and imperfect informa7on – Opportunis7c behaviors – Property rights are not clearly defined…
North-‐Eggertsson classifica7on
• Ex-‐Ante – Search for informa7on – Bargaining – Making of contracts
• Ex-‐Post – Monitoring – Enforcement – Protec7on of PrR against third party encroachment
Ex-‐Ante Ex-‐Post
TrC and quality of ins7tu7ons • Chong, La Porta, Lopez-‐de-‐Silanes & Shleifer (2014):
postal service and government efficiency • Dec. 2010 – Feb. 2011 • Authors conducted experiment:
– Mailed leNers to non-‐existent business addresses in 159 countries • A standard one page business leNer • 2 leNers per 5 major ci7es in each country
– Measured whether they come back to the return address in the United States and how long it takes
TrC and quality of ins7tu7ons • Number of days between date leNer sent and date
leNer received varies a lot • From 16.2 to 418.8 days on average
TrC and quality of ins7tu7ons • Number of days between date leNer sent and date
leNer received varies a lot • From 16.2 to 418.8 days on average
• High correla7on with Government efficiency and Accountability indicators • E.g. “got the leNer back” and bureaucra7c efficiency =
0.559*** • “got the leNer back” and “freedom of the press” = -‐ 0.578***
What about Russia?
Russian Post Service
Russian Post Service • TrC according to North-‐Eggertsson classifica7on -‐ ?
• Ex-‐Ante – Search for informa7on – Bargaining – Making of contracts
• Ex-‐Post – Monitoring – Enforcement – Protec7on of PrR against third party encroachment
Other examples • Which TrC arise when you are going to
– obtain a visa? – receive a driver's license? – choose a photographer for the gradua7on album?
How to decrease TrC • Who may be interested in it?
– 1st party – 2nd party – 3rd party
• Connec7on between ТrС ex ante и ex post
• Ways of decreasing TrC – Networks – (Informa7onal) intermediary
next topic! So stay tuned J
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