For citation:
Anokhov, I. V. (2020). Internal Transaction Costs of Firm as a Consequence of the Limited Locus of Control. Zhurnal Economicheskoj Teorii [Russian Journal of Economic Theory], 17 (1), 213-224
Abstract:
The article considers a production company as a link between two poles (suppliers and buyers), which ensures the transformation of resources in the interests of consumers. This requires specific efforts from the company, which are not related to the actual production process.
Transaction costs are formed in functionally separate levels of the firm activity: design and technology (integration of the firm into the market environment); economic (distribution of the cost of the product sold between the firm and resource suppliers); providing (preparation and accumulation of the firm’s resources in production areas); production (resource transformation).
Transaction costs are generated by the locus of control, that is the ability of the company’s management to focus attention and intellectual resources on a limited area of the market. Therefore, it cannot perceive cause-effect relationships holistically and reconcile long-term interests with internal and external actors. For these reasons, the company has to overcome the resistance of the internal and external environment, that is to bear transaction costs. Based on this, to minimize transaction costs, the article considers ways to overcome the limited rationality, uncertainty of the environment and mismatch of interests.
In order to reduce internal transaction costs, it is proposed to direct the firm’s efforts to select employees with long-term interests that will create a commitment to the company. The value of which is higher the longer the employee has worked and the more he/she has invested in its development. Maximizing rights and personal responsibility facilitates the employee’s long- term investment in this specific asset. In the long term, the reduction of internal transaction costs is achieved by increasing the emotional and value-semantic level of all employees of the company.
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