Expanding the Positions of New Institutionalism in the Context of the Coase Theorem

Abstract:

New institutional economic theory bears different approaches to determination and calculation of transaction costs and their use in transactions analysis, various behaviour models of agents, study of institutional changes, etc. Firm emergence and the issue of its nature are also revealed by means of transaction costs. They predetermined the content of the so-called Coase theorem when they are equal to zero. The theorem was reduced to the situation where the production pattern does not change if the effect of income is eliminated at the specification of the property right. However, in reality transactional costs are not equal to zero as institutions compel the agents to look for a solution not only through transaction, but also by means of judicial decisions and other solutions. This circumstance urges to give the formulation of the theorem for the cases when transaction costs are nonzero and to correct a series of examples where different rights of the agents are being specified in various manners. The production pattern in a well-known problem «cattle-breeder — farmer» seems to be wider than just the outer effect. The equality of income growth rates of the cattle-breeder and the farmer should be under the condition that the production pattern does not change. Dynamic restrictions in the static form of the Coase theorem are not considered, which results in the necessity to formulate the theorem in conformity with the cases where transactional costs are nonzero and the property rights are defined either accurately or inaccurately. In the first case, the costs are rather stable; in the second case, they can increase. Moreover, the renewal of the Coase theorem should be applied to the property rights to the asset that defines the production. If it changes, the production pattern should also change even if the transactional costs are equal to zero. Change of the property rights affecting the minor (non-defining) asset will not really affect the production pattern and the value of production that corresponds to the initial formulation of the theorem. Thereby, the conditions for the Coase theorem and the conditions enlarging the range of its application are obtained at the theoretical and analytical level of the analysis. There will certainly be a law of transaction costs change for each agent. Besides, the outer effects will be connected with information, its imperfection and asymmetry. They cannot be eliminated only due to the reconciliation of agents’ interaction. It is essential to combine the approaches of R. Coase and A. Pigou.

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