Institutional Economics

2019/2020

Учебный год

ENG

Обучение ведется на английском языке

4

Кредиты

Кто читает:

Международный институт экономики и финансов

Статус:

Курс по выбору

Когда читается:

4-й курс, 1, 2 модуль

Course Syllabus

Abstract

The course in “Institutional Economics” is taught to the fourth year undergraduate students and is designed to last one semester. The course is delivered in the form of lectures and seminars. The course is taught in English and is examined by the ICEF final exam. The course in “Institutional economics” accomplishes a series of courses that constitute the basic training for economists. The main idea of the institutional economic theory is that institutions have efficiency implications for resource allocation and for the welfare of all members of the society under the assumption of positive transaction costs. Institutional structure of the economy determines the incentives of economic agents, their possibilities range and the transaction costs they bear. In this course students study the impact of institutions on the incentives of economic agents, and eventually on the wealth of the society. The course also gives an economic explanation to institutions of the economy. Prerequisites: Microeconomics, basics of game theory

Learning Objectives

• introduce the main concepts that describe the institutional structure of the society
• provide an overview of the recent developments in the field of institutional economics
• introduce the basic concepts and techniques related to the subject
• show the students how the institutional structure of the economy determines the incentives of economic agents
• help the students to understand the role of institutional environment in economic theory and in business practice
• enable to use the concepts and methods of institutional economics in the analysis of institutions of the society
• help studnts acquire the skills of their own economic analysis of institutions

Expected Learning Outcomes

• analyse of the institutional structure of society
• use the concept of transaction costs in the explanation of institutions, business practices and contract types
• conduct comparative institutional analyses of property rights regimes
• explain the emergence of property rights
• apply transaction costs economics to explaining the choice of type of contract
• analyse the behaviour of the firm based on its property rights structure
• Use of the neoclassical theory in the explanation of the state
• conduct economic analysis of the behaviour of the state
• analyse institutional changes
• use the concept of path dependence in the analysis of the dynamics of modern institutions

Course Contents

• Introduction to institutional economics
  The concept of an institution: attempts at definition. Institutions and organizations. Functions of social institutions. Interaction situations and the types of norms: prisoners’ dilemma-type situation; co-ordination situation; inequality situation. Enforcement characteristics. Institutional structure of the society. Formal and informal institutions. Sanctions for disobeying the norms (self-enforcing sanctions, guilt, shame, informational sanctions, bilateral costly sanctions, multilateral costly sanctions). Conditions of norms’ effectiveness. Interaction of formal and informal institutions. The limits on imitations of institutions from bestperforming countries. The problems of their enforceability. The new institutional economics and modern institutionalism. Old institutionalism.
• Transaction costs
  The concept of transaction. Market and intrafirm transactions. Transaction costs as friction in the economy. Two main theoretical approaches to transaction costs. Transaction costs and transformation costs. Interdependency between transaction costs and transformation costs. Types of market transaction costs and means of transaction costs minimization. Search and information costs. Measurement costs. Search goods, experience goods and credence goods. Excessive measurement. Productive and distributive information. Business practices as means of economizing on measurement costs (warranties, share contracts, brand name). Oversearching and suppression of information - “pig in a poke”. Bargaining costs. Cooperative surplus and different ways to divide it. Hobbes bargaining as a social dilemma. Battle of sexes, Stackelberg strategy and the reputation of the leader. Credible threats. Bargaining costs and types of contracts. Supervision and contract enforcement costs. “State of the nature”, trust game and contract enforcement. Hostage, collateral, self-enforcing agreement and emotional union as private means of bilateral contract enforcement. Reputation as a contract enforcement device. Bilateral and multilateral reputation. Shortcomings of the reputation as a contract enforcement mechanism. Reputation, information and the “free rider problem”. Reputational mechanism supported by organizations. Comparative advantages and shortcomings of the legal enforcement mechanism. Contract enforcement mechanisms as second-best solutions. Transaction costs of protection against the encroachment of third parties. Transaction costs, the main types of economic exchange and their supporting institutional structures. Coexistence of the main types of economic exchange in the modern society. Transaction cost measurement. Transaction costs in the Russian economy
• Property rights theory
  The definition of property rights. Property rights in different legal traditions (common law and civil law traditions). The property rights approach: some basic concepts. Specification of property rights, the bundle of rights, partitioning of property rights, attenuation of property rights. 7 Assigning property rights: the internalization of externalities. The Coase Theorem. Critique of Coase (dynamic effects of alternative legal rules, wealth effect, distributional effects, strategic behavior and the problem of holding-out, endowment effect, sociological critique, unrealistic assumption about zero transaction costs) Alternative property rights regimes. Common property (open access) and the tragedy of the commons. Exclusive property rights and the conditions for their emergence. Transaction costs of property rights specification. Communal property. Optimal group size. The First economic revolution. Private property. Public property. The emergence of property rights. The optimistic theory of the emergence of property rights (naive model). The interest-group theory of property rights. The costs of collective action. The theory of rent-seeking.
• Contracts
  The definition of a contract. Legal and economic approaches to contracts. Bounded rationality and contractual incompleteness. Asymmetric information (hidden characteristics, hidden information/ hidden action, hidden intentions) and opportunistic behavior. Adverse selection and the closing of markets. Signaling, screening and self-selection. Asset plasticity and moral hazard. Principal-agent problem and agency costs. Controlling and preventing moral hazard (controlling the agent, incentive contracts, bonding, do-it-yourself). Case study: crisis of the savings and loan associations in America as an example of moral hazard in financial markets. Attributes of transactions and the choice of contract. Asset specificity, types of specific assets. Synergy effects, quasi-rents appropriation and hold-up problem. Classification of contracts (classical, neoclassical and relational contracting). Discrete alternative governance structures: market, hybrids and hierarchy. Hybrids: specific assets and their safeguards. Institutional environment and its role in the choice of contract. The role of trust. Economic approach to trust. Explaining the internal structure of formal organizations: transaction costs approach.
• Institutional theories of the firm
  Neoclassical theory of the firm. Explanations of the firm in the new institutional theory ( Knight, Coase, Simon, Alchian and Demsetz, Williamson, Milgrom, Hart). The market and the firm. Comparative analyses of the alternative coordination forms. Internal market and influence costs. The boundaries of the firm. Ownership structure of the firm. A theory of the owner-monitor (Alchian and Demsetz, 1972). Competing forms of economic organization, relative advantages of alternative structures (proprietorships, partnerships, open corporation, regulated firms, public enterprises, nonprofit organizations, labor-managed firms). Separation of ownership and control in the open corporation. Opportunistic behavior of managers and corporate control. Outsider and insider corporate control. Privatization in Russia and other transition economies and corporate governance.
• Economic theory of the state
  Social mechanisms for constraining open access. Contractual theories of the state (Locke, Rousseau), Hobbes’ predatory theory of the state. North’s model of the state. The regulatory role of the state in the Russian economy.
• Institutional Change
  Stability of institutions and institutional change. The concept of institutional equilibrium. The main sources of institutional change. Centralized and spontaneous institutional change. The role of the state in the process of institutional change. The problem of compensation of disadvantaged groups. Selection of efficient institutions in the process of competition (Alchian, Friedman). Institutional change and path dependence. Forms of path-dependence (weak form, semi-strong and strong forms).

Assessment Elements

• home assignments
• test
• presentations
• exam

Interim Assessment

• Interim assessment (2 module)
  0.4 * exam + 0.1 * home assignments + 0.3 * presentations + 0.2 * test

Bibliography

Recommended Core Bibliography

• Daron Acemoglu, Simon Johnson, & Florencio Lopez-de-silanes Andrei Shleifer. (2005). Unbundling Institutions. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsbas&AN=edsbas.1E7ECEFD

Recommended Additional Bibliography

• Институциональная экономика : учебник для академического бакалавриата, Одинцова, М. И., 2014