Efficiency of Institutions and Economic Agents from Transaction Costs Perspective

Abstract

Transaction costs are among the fundamental parameters of economic relations. Nevertheless, there is a controversy over the understanding of transaction costs when establishing the efficiency of institutions and economic agents. Having performed a critical analysis of contemporary views, we substantiate a number of assumptions that clarify the nature of the institutional order. The research results show that institutions not only do not have the goal to minimize transaction costs, but, on the contrary, they serve a catalyst for their growth, since the emergence of any institutional normative imperative (which is also a new institution) leads to an increase in overall transaction costs. At the same time, the functioning of the market and competitive interactions between economic agents are detected precisely by the presence of transaction costs, while the transaction costs incurred by the actors cause a change in the level of uncertainty and complexity of this interaction. The veiled ‘struggle’ of economic agents against institution in any of its forms faces an insurmountable (ceteris paribus) minimum of transaction costs, which determines the existence and functioning of a given institution or a complex of institutions. The confrontation between the criteria for the efficiency of institutions and economic agents creates conditions for finding a balance between complexity and uncertainty in the economic mechanism.