We began to search for new incentives for effective work in a free market.

Little known to the general public, the theory of contracts attracted worldwide attention after the scientists who studied it, Oliver Hart and Bengt Holmström, received the 2016 Nobel Prize in Economics. This hypothesis has had a major impact on numerous related fields. Its influence has extended to modern political economics and corporate finance theory.

The essence

Contract theory is used to determine proper remuneration for subordinates. Its application is universal. The theory is equally suitable for enterprises with ordinary workers with piecework or fixed wages and cases with highly paid positions of top managers or various corporate managers (but their remuneration scheme is much more complicated). Using methods formulated by scientists and leading economists in the world, it is possible to determine the most suitable method of remuneration for both parties. They suggest the right choice between bonuses in the form of cash, company shares or options to purchase them.

The fundamentals of contract theory can also be useful in the field of regulatory economics. Jean Tirole received the 2014 Nobel Prize for research in this area. Another important area of ​​application is corporate governance and corporate finance. To study them, they resort to the use of agent models.

Also, the theory of contracts is adjacent to the theory of auctions. These areas of the information economy are quite similar and have many common features. Today, leading economists are developing leading auctions. In their work they use methods developed, among other things, by the theory of contracts. A properly prepared auction brings in profits that are orders of magnitude greater than a similar event if organized carelessly.

Conflicts at work

The key foundations of contract theory, models and tasks of this discipline are reduced to the construction of abstractions, for example, the “subordinate-superior” or “agent-principal” model. Two faces collide in it. Both have their own preferences and interests. Contract theory considers situations in which conflicts arise between a superior and a subordinate caused by their different goals and objectives.

A dispute does not mean that one party wants to harm the other. There is room for both contradiction and cooperation. The main aspects of contract theory address situations such as when a boss wants his subordinate to work more without increasing his salary. The employee's desires are exactly the opposite. In this situation, the boss has a dilemma: what incentives to give his subordinate to act in the interests of the employer? The essence of contract theory comes down to analyzing and providing options for resolving such contradictions.

Basic principles of the theory

One solution for the boss may be to sell his project to a subordinate, thereby organizing a new franchise. The buyer pays a certain amount and becomes the beneficiary, starting from that moment to receive all the costs and benefits. This solution looks elegant and efficient in theory. However, it has flaws, including conceptual ones. This situation leads to the fact that the boss insures himself against possible risks, and the subordinate, on the contrary, takes them all upon himself.

Therefore, such a solution cannot work. But the whole point is that the ability to take risks is characteristic of bosses, and not of subordinates. Contract theory, in short, is about just such relationships. Scientists and thinkers working within its framework at different times considered several abstract solutions in situations of conflict of interest.

Controlling the efforts of a subordinate will not be a way out of the deadlock. In this case, the boss would coerce and force him to do only what is in the employer’s own interests. An illustration of such relations can be the centuries-old history of the economy under an exploitative system. In reality, modern subordinates often act only at their own discretion, which has a significant impact on the result.

Reward Factors

One of the theorems that contract theory offers in institutional economics is the theorem of sufficient statistics. It belongs to the already mentioned Nobel Prize laureate Bengt Holmström. This theorem offers a solution to conflict within the superior-subordinate model. What is she? Holmstrom examined and analyzed in detail the situation in which a boss measures indicators that inform him about the performance of a subordinate. The expected reward or even punishment depends on them.

Holmstrom came to the conclusion that a boss needed to stop taking into account factors outside his subordinate's control. Decisions made in the opposite case create unnecessary risk and only interfere with the motivation of the employee. In this case, the boss needs to focus on all the other information available to him about the effectiveness of the subordinate’s efforts.

Simplified incentives

Many situations do not fit into the classical model. An example of this would be a case where a subordinate is entrusted with several tasks at once, and he needs to put in a variety of efforts. For example, a worker takes care of a machine, takes care of its safety, adds oil to it and at the same time turns some parts on it. Even if payment for such work is piecework, it can lead to some problems. The basic principles of contracts are based on the desire to avoid such developments. An example of a bad decision is a simple and powerful incentive that will inspire a worker to work hard while making him forget about his additional responsibilities (attending to a machine that will break down if not taken care of).

Multidimensional efforts are always fraught with additional risks for the boss. An incentive scheme created for such a case must take into account all the individual characteristics of the situation. Simplification is something that contract theory struggles with. It can be briefly described using the example of a teacher. If a teacher at school is required to have certain Unified State Exam results, then he will “drive” children towards the result, forgetting about the most important thing - in fact, knowledge. Even seasoned professionals can fall into this trap if given the wrong, perverse incentives. As a result, their students will not acquire key skills, including the ability to think critically and independently understand the subject.

Another example of conflict is a project for an entire team in which the powers and responsibilities of employees are not clearly distributed. It implies that the boss cannot evaluate the individual contribution to the result of each of his subordinates. It is precisely such collisions that economists study, whose research concerns the theory of contracts. Ways to resolve conflicts are what these professionals are looking for. They strive to find a point where the interests of both the boss and the subordinate intersect.

Relational contract

When performing certain types of work, the reputation mechanism plays a very important role. It was studied in particular by Hart and Holmström. Contract theory in such situations studies relational contracts. They arise when a subordinate and a boss work together for quite a long time. The more experience they have with effective interactions, the more they will value their cooperation. Trust arises. In this case, there is less chance that people will act only in accordance with their own interests, but will proceed from the need for mutual benefit. For example, a boss will become generous with bonuses, and a subordinate will not be afraid of a risky initiative.

The reputation factor is especially important when there is no objective assessment of work results. This could be a painting by an artist or another object of creative work. In such situations, there is often no third party who can resolve the dispute. Only the customer can determine that a painting is worthy, based on his, perhaps unclear, ideas about art. The court is powerless here, but the theory of contracts can help. In institutional economics, reputation mechanisms are studied from a variety of angles.

Incomplete contract

Among other things, Oliver Hart's theory of contracts, for which he received the Nobel Prize, is devoted to the topic of incomplete contracts. Its essence boils down to the thesis that life is too complex and diverse for the initial agreement concluded between the parties to provide for any. That is why the participants in the process will negotiate during the course of work. Such discussions allow us to resolve new problems and challenges that have arisen between the subordinate and the boss. They fill in the gaps that inevitably appear over time in the very first contract.

Next, details play an important role. Who has the rights to make decisions and influence negotiations? How interested are the parties in continuing cooperation despite the problems that have arisen? Oliver Hart's contract theory is all about this. It has influenced many related disciplines. Hart's ideas affected the theory of corporate finance and the solutions he proposed are used by many entrepreneurs and businessmen. The scientist's theory has long served investors and capital planners of public companies. With its help, the progress of the bankruptcy procedure of bankrupt businessmen and enterprises is determined.

The theory of incomplete contracts has found application in debates about economic distribution between the public and private sectors. This debate concerns the fate of organizations providing treatment and education services. Should they be government-owned or remain part of the free market? The theory of incomplete contracts in this case affects the same motivation of subordinates. For example, if a manager is hired by the state, then he has less incentive to invest, since the state may not reward his efforts at all under its own monopoly. In a competitive market with many private companies, things are completely different. In such conditions, each employer strives to introduce something new into its production or provision of services in order to overtake its opponents. Therefore, companies will reward managers for initiative and innovation, which will certainly become part of the contract.

Incentives and psychology

Along with contract theory, behavioral economics has developed since the 1980s. It studies human behavior that influences decision-making and employee motivation. All this is directly related to contract theory. Many of the ideas that formed its main postulates were drawn precisely from behavioral economics.

An example of such borrowing is the thesis that people are motivated not so much by material rewards, but by a sense of the social benefit of their work, justice, etc. The Nobel Prize in Economics (2016) was awarded for research in this area. Contract theory has been especially actively developing in this direction in the last 10-15 years. During this period, many serious works have appeared containing an analysis of the internal motivation of subordinates based on relationships with others. These considerations are superimposed on the classical established models of contract theory, which poses new open questions for science that require answers.

Through contract theory, the concepts of social norms and identity are introduced into economics. They contain elements of sociology and psychology. Because of this, specialists in a variety of scientific fields work with contract theory. They offer alternative methods of motivating subordinates that emphasize their sense of identity and belonging (for example, to a certain social group).

Salary and productivity

In 1979, Bengt Holmström formulated one of the principles of an optimal contract in one of his publications. Ideally, he should tie wages to the results of the subordinate's work. For example, if a company manager is responsible for the stock price, then his salary will be reduced if the stock price falls. However, financial losses have a chance to occur through no fault of the agent. Extraneous circumstances (for example, market conditions) may intervene. Contract theory offers different solutions to this contradiction. For example, the salary of the manager described above can also be determined according to the earnings of competing companies. If shares rise for third-party reasons that affect the entire industry, then this is not the agent’s merit, and then there is simply nothing to reward him for.

The relationship between a subordinate's performance and company performance is often skewed by a variety of factors. The more such circumstances, the less the manager’s earnings should depend on the company’s performance. Separately, contract theory considers high-risk areas. This may be a new area for investment. The more involved a subordinate is in this zone, the better it is to make his salary fixed. In this case, with fluctuations (regardless of their positivity or negativity), the likelihood of a conflict between employee and employer is noticeably reduced.

Balanced incentives

An employee’s motivation can be not only high wages, but also the prospect of career growth. Authors of contract theory have examined in detail the interaction of these two intertwined factors. In a competitive market, a company must offer employees high wages, otherwise they will leave for competitors. This system has its own distortions. For example, there is a threat that new personnel will work too hard, while specialists at the top steps of the career ladder, on the contrary, will begin to shirk their responsibilities, since their needs have already been generally satisfied.

In this context, the fixed salary model has its advantages. The example of a teacher who is required to achieve high results from students in exams has already been given above. Such expectations lead to a bias and focus on certain objects or tasks. If the salary is fixed, regardless of performance indicators, the distribution of effort between tasks will become balanced.

Features of the theory

A related area of ​​contract theory is the economics of information. Research in these areas has been carried out quite recently. Just a few decades ago, even the most serious and eminent economists did not pay attention to how people respond to various incentives and how these incentives create behavior that is optimal for achieving a certain goal. Interest in such phenomena increased in the 70s.

James Mirrlees and William Vickrey were the first to study economic incentives. These specialists influenced the formation of the theory of optimal taxation, with which the theory of contracts is closely related. The books of Mirrlees and Vickrey were supplemented by the works of such eminent scientists as Jean Tirole, Eric Masquin, Jean-Jacques Laffont, Roger Myerson. Many of them were awarded the Nobel Prize in Economics. The aforementioned Oliver Hart and Bengt Holmström also belong to this galaxy of researchers.

Full of lemmas and theorems, contract theory operates on abstract concepts and in this sense is very close to mathematics. At the same time, the models she considers are built according to real life motivation. The conclusions drawn by contract theory are widely used in practice. She weighs the pros and cons of many controversial issues. An example of the application of the theory is the dispute over the fairness of high salaries for top managers of Russian and foreign companies. Is it not for nothing that these employees receive such significant rewards for their work? Contract theory can answer this question in simple terms, since it has numerous economic arguments in its arsenal.

Target - introduce the theory of contracts, classification and types of contracts

List of basic concepts: contract, classical, informal, implicit contract

1. The concept of a contract. Contractual nature of economic relations.

2. Types of contracts.

3. Specificity of assets and types of contracts.

4. Contract management.

1. The concept of a contract. Contractual nature of economic relations.

In the new institutional economic theory, a contract (agreement) is considered as a type of institutional agreement. In terms of the last contract can be defined as follows:

A contract is a set of rules that structure in space and time the exchange between two (or more) economic agents by defining the rights exchanged and the obligations assumed and determining the mechanism for their compliance.

2. Types of contracts.

From the accepted definition of a contract, it becomes obvious that one of the decisive conditions for concluding an agreement is the presence of a mechanism for enforcing its implementation. The method of resolving conflict situations that arise during the exchange process depends on the choice of the coercion mechanism and the appropriate guarantor of the contract. This characteristic can be used as the basis for a typology of contracts based on Ya. McNeill’s three-tier classification of legal concepts of contract, which is based on the division of contract law into classical, neoclassical and “relational”. (Note that the material discussed in this subsection relates rather to Anglo-Saxon legal practice, based on the norms of case law).

Within classical contract law the exchange process can be facilitated by increasing the discreteness and “presentativeness” of agreements. Presentation is understood as the desire to describe the future situation as fully as possible from the standpoint of its current understanding. Such contractual practice implies that all relevant changes that require adaptation are described in advance, and the probability of various scenarios for the development of the situation is calculated. In fact, we are talking about concluding a full formalized contract.

Formalized are called contracts that clearly state the rules structuring the exchange (the subject of the agreement, the set of rights and obligations of the counterparties, as well as the method of resolving conflicts and the mechanism for enforcing the fulfillment of undertaken obligations).

In conditions of completeness of the contract, a number of essential characteristics of contractual relations can be identified. Firstly, the personal qualities of the participants in such a mutually agreed exchange do not affect its conditions, i.e. it is optional that the parties correspond to each other. Secondly, after carefully defining the essence of the agreement, the parties carrying out the exchange are primarily guided by legal norms and the formalized terms of the contract. Third, the means to overcome difficulties with the implementation of the contract are precisely defined. Disputes arising between parties to such agreements may be resolved in a civil court. Strictly speaking, the services of a third party in this case are necessary only to ensure the credibility of the threat of punishment, since the court’s decision is initially obvious. If it is clear that one of the counterparties has violated the terms of the agreement, relations with him are immediately interrupted, i.e. the transaction self-liquidates. This is why such contracts can be considered self-executing.

A classic contract is complete and formalized, it involves termination of the agreement if a conflict situation arises, and the state is the guarantor of its implementation.

Neoclassical model of contracting used primarily when concluding long-term contracts that inevitably contain gaps, i.e. being incomplete.

We list the possible reasons for the incompleteness of the contract.

Contract provisions may be unclear and ambiguous due to lexical limitations.

Contractors, due to bounded rationality, often overlook important changes related to the performance of the contract, especially if they cannot easily assess the impact of these variables on the implementation of the contract.

In the vast majority of cases, the parties act in conditions of structural uncertainty, i.e. cannot know the probability of future events occurring.

Revealing all the relevant information known to one of the parties or unknown to either party to the contract increases the benefits of one or both parties, but also increases the pre-contract transaction costs of information search and negotiations, on which rational agents tend to economize.

The parties may find it more profitable not to disclose information to each other, which will lead to an increase in the individual winnings of one of the counterparties.

Parties may intentionally enter into incomplete contracts, passing on the costs of completing the contract to a third party.

Accordingly, if we consider the incompleteness of the contract as an alternative to ideal completeness, then we can interpret it as a consequence of radical uncertainty, consisting in the impossibility of taking into account all events occurring in the future and structuring relationships between economic agents on this basis. If we take the working definition of functional completeness, then the contract will be incomplete or contain gaps when the fulfillment of the terms of the contract will leave the benefits of the exchange unrealized, taking into account the information available to counterparties and judges at the time of the transaction.

A neoclassical contract is incomplete and assumes the continuity of relations between the parties in the event of a conflict situation until the completion of the transaction. The guarantor of the contract is a third party.

A relational contract is incomplete and requires long-term cooperation between the parties. The guarantor of the contract is one or both counterparties.

It is used in fairly close interaction between counterparties who prefer to resolve their disputes without resorting to the help of a third party. This will be done for a number of reasons. First, resorting to an external arbitrator is likely to undermine the parties' trust in each other. Secondly, with the increasing complexity of the assets used and other characteristics of the transaction, even a qualified expert will not be able to understand all the nuances. Many variables related to the implementation of the exchange are unverifiable by a third party. Thirdly, contracts concluded in such conditions are incomplete, with a large unformalized component; when fulfilling them, the parties are based not so much on the clauses written on paper, but on the experience of all previous relationships. Therefore, when resolving a dispute, a third party can only guess about the true intentions of the partners, and such guesses under these conditions are highly likely to turn out to be incorrect.

3. Specificity of assets and types of contracts.

The choice by counterparties of one type of contract or another depends on characteristics carried out transactions. The first characteristic is level of uncertainty. Actually, uncertainty is not an integral attribute of a transaction; rather, it is a characteristic of the external environment. However, when considering the level of uncertainty as a parameter for carrying out transactions, it is necessary to identify, firstly, the main source of uncertainty and, secondly, whether it can be structured, i.e. whether economic agents can expect the occurrence of future events with some probability or whether they act in conditions of radical uncertainty.

The inability to assess all future events is aggravated by surprises associated with partners' reactions to exogenous shocks, for example, changes in market conditions. The parties to the agreement are not only unable to make proposals about the likelihood and direction of changes, but also to determine how opportunistically the counterparty will behave.

The second characteristic of transactions is the degree asset specificity, being the subject of an agreement or resources, the use of which is related to the performance of the contract.

Specific is an asset or resource that acquires special value within the framework of a given contractual relationship.

This means that the degree of specificity is determined according to the ability to repurpose resources or assets for use in alternative purposes or in relationships with other partners without loss of productive capacity.

We will look non-specific, low-specific and idiosyncratic resources and assets. If the income from the use of a resource does not exceed the value of opportunity costs, then this resource can be considered as a general purpose (non-specific) resource. If the opportunity cost of using a resource is less than the income extracted from it, but greater than zero, then it is a low-specific resource. Finally, if opportunity costs are negligible or zero, then resources become idiosyncratic.

To better understand, consider the different forms of asset specificity: location specificity, physical asset specificity, human asset specificity, target asset specificity.

The use of specific resources and assets not only increases the complexity of contractual relationships, but also affects their duration by increasing the interdependence of counterparties.

The third characteristic influencing the choice of contract type is frequency of transactions. In order for the costs of creating and maintaining complex governance mechanisms to be justified, repeatability of transactions is necessary, which generates positive economies of scale. There are three levels of transaction frequency: one-time, random(or sporadic) and regular(or continuous).

So, in conditions of radical uncertainty, the choice of mechanism for managing contractual relations will depend on the frequency of transactions and the degree of specificity of the resources used.

4. Contract management.

One of the criteria for increasing the efficiency of contractual relations is minimizing transaction costs. To achieve this result, it is necessary to select the appropriate management structure. These structures are not the same in terms of operating costs and capabilities for ensuring the implementation of transactions.

O. Wilbyams highlights four types of contract management structures: market, tripartite, bilateral and unilateral.

Market management most effective when implementing transactions that do not require investments in specific assets. In this case, the defense against opportunistic behavior is the ease of ending the relationship. If regular repetition of transactions is proposed, then the parties, after analyzing their own experience, can decide to continue the relationship or change the partner with minimal costs. In case of random transactions, the guideline in choosing a partner is his reputation in the market for a given product. Under these conditions, prices play a dominant role in providing coordination, control and incentives, which is characteristic of a competitive market.

An additional means of reducing the risk of opportunism is the threat of punishing an unscrupulous partner through the imposition of fines and other sanctions applied by the judiciary. To do this, at the pre-contract stage, it is necessary to carefully determine the essence of the agreement and the means of overcoming difficulties with its implementation, which is relatively easy with simple exchanges of standard goods.

Three-way control necessary when carrying out one-time transactions, the effectiveness of which increases from the use of specific assets, which predetermines the importance of continuity of relations. Reducing the threat of contract termination requires finding other forms of preventing opportunistic behavior.

To carry out regularly recurring transactions that require investment in specific assets, the development of specialized management structures is justified: bilateral, in which the autonomy of the parties to the transaction is preserved, and joint management, involving the transfer of transactions from the market to the boundaries of the company, where they are implemented on the basis of administrative decisions. Under these conditions, the importance of the correspondence of the interacting parties to each other becomes dominant and the termination of transactions due to a dispute will be associated with prohibitively high costs.

Forms of effective transaction management, depending on the specificity of assets and the frequency of transactions, are presented in Table. 4

Table 4

Forms of effective transaction management

Conclusion

Contracts are rules that “serve” (i.e. coordinate) various exchanges. The most common form is market exchanges, but in general the variety of types of exchanges is much wider. We will call exchange the redistribution of property rights to certain goods between two or more agents. Such redistribution is associated with decision-making by its participants. The results of the redistribution of property rights (exchange) obviously depend on how and under what conditions its participants make decisions. It is important to distinguish these conditions, or decision-making situations, by characteristics selectivity and symmetry. Based on selectivity, the entire set of exchanges can be divided into selective - those where subjects have the opportunity to choose the counterparty, the subject and proportions of the exchange (in particular, price) - and non-selective, where this opportunity is absent. Based on symmetry, exchanges are divided into symmetric and asymmetric. Within the first group, the options for choice are the same for the parties; within the second group, they are unequal.

The UMP includes a short course of lectures on this discipline. In accordance with the credit training system, students must familiarize themselves with the lecture material before class. During a lecture session, the teacher explains questions, discusses unclear questions in a dialogue mode, and considers complex and problematic issues.

At the end of the lectures, questions for self-monitoring and self-testing are presented. It is recommended that after studying the lecture, you test yourself by answering these questions.

Questions

1. Define the concept of contract

2. Name the types of contracts

3. Give them a description

4. Specify situations, give examples of their application

5. Define asset specificity, symmetry, selectivity of exchanges

Literature

Institutional economy. Study guide./Hands-on. Lvova D.S. – INFRA-M, 2001

Institutional economy. New institutional economic theory / General editor. Dan. prof. A.A. Auzana – M.: Infra-M, 200 p.

Oleinik A.N. Institutional economics: Textbook - M.: INFRA-M, 2004 - 416 p.

Tarushkin A.B. Institutional economy. Textbook - St. Petersburg: Peter, 2004 - 368 p.

A contract is a bilateral (or multilateral) legal transaction in which two parties (or many parties) have agreed to certain mutual obligations.

The fundamental principles of contractual obligations are: 1) freedom of contract, i.e. freedom to conclude, determine the content and form of a contract, freedom to choose counterparties; 2) responsibility for the fulfillment of the contract, i.e., violation of the terms of the contract serves as the basis for holding the violator accountable.

Classifications of contracts From a legal point of view, the following types of contracts are distinguished. 1. A sales contract involves, on the basis of an agreement, the transfer on a permanent basis of ownership rights to the relevant asset from one party to another. 2. There are two types of rental contract: a contract for the rental of a physical object (lease) and a contract for the rental of personal property.

From a legal point of view, the following types of contracts are distinguished. 3. An employment contract implies the performance of actions by one individual (employee) in accordance with the instructions of another (employer). 4. Loan contract. Not available in all legal systems.

Classifications of contracts from an economic point of view are complete and incomplete; classical, neoclassical and relational; explicit and implicit; binding and non-binding; formal and informal; short-term and long-term; standard and non-standard (complex); self-executing and third-party secured; individual and collective; contracts in conditions of information symmetry and asymmetry; contracts with information verifiable and non-verifiable by courts; contracts concluded in one's own name or on behalf of

There are several important parameters by which contracts may differ: 1) frequency of interaction between economic agents; 2) the presence of uncertainty; 3) the degree of specificity of the resource, the use of which is specified in the contract; 4) contract protection mechanism; 5) urgency; 6) standard; 7) mechanism of renewal and adaptation.

A classic contract is a bilateral contract based on existing legal rules, clearly stating the terms of the transaction, imposing sanctions in case of failure to comply with these conditions and resolving disputes in court.

A neoclassical contract is a long-term contract under conditions of uncertainty, when it is impossible to foresee in advance all the consequences of the concluded transaction.

Comparative characteristics of classical, neoclassical and relational contracts Characteristics of the contract 1. Term 2. Prolongation mechanism 3. Formalization 4. Protection mechanism 5. Standardity 6. Completeness 7. Adaptation mechanism Classical Neoclassical Relational Short-term Can be long-term Long-term Absent, self-liquidating contract Assumed Available Formalized How usually informal Protected with the help of a third party - the court Protected with the help of a third party - Self-executing from a specialized court Standard Non-standard Complete Incomplete Absent Available Incomplete Available, plays an important role

The terms of a classic contract do not depend on the characteristics of the counterparties; the correspondence of the parties to each other does not matter. There is no adaptation mechanism in the classical contract, since otherwise it would lead to excess costs. The formalization of the contract in the first two cases is important so that, if necessary, you can go to court, but for a classical contract, general civil courts are sufficient, and for a neoclassical contract, arbitration or specialized courts are required.

In the context of a relational, self-fulfilling contract, it is inappropriate to turn to a third party due to the risk of interruption of the transaction, and therefore the loss of specific assets. Disputes are resolved through informal negotiations and bilateral bargaining. Employment contracts are one of the main examples of relational contracts.

Mechanisms that encourage or force the fulfillment of contractual obligations: recourse to court in case of violations. an agreement on some special procedures designed to monitor the progress of the transaction.

Different forms of contract are subject to different “regulatory frameworks”. O. Williamson considers the market to be the mechanism regulating the simplest contracts (they are called “classical”); the mechanism governing complex contracts (they are called “relational”) is a hierarchical organization (firm). In the first case, the relationship between the participants is short-term and impersonal, and all disputes are resolved in court. In the second, relationships become long-term and personalized, and disputes begin to be resolved through consultations and informal negotiations.

The Contribution of the Authors of Contract Theory to the History of Economic Thought Representative Main Work Oliver Eaton Williamson, The Economic Institutions of Capitalism, 1985. Joseph Eugene Stiglitz, Public Sector Economics, 1997. Ian Roderick McNeill, Where Are the Contracts? "("Whether Contracts?"), 1969.

The 2016 Nobel Prize winners in economics were economists Oliver Hart, professor at Harvard University (USA), and Bengt Holmström, professor at the Massachusetts Institute of Technology (USA). The Nobel Committee's message notes that the prize was awarded to their work on the theory of contracts in economics.

Announcing the names of the latest laureates, the Nobel Committee noted that their analysis of the optimal terms of concluded contracts provides the basis for them in many areas - from bankruptcy law to political decisions. We are talking about some provisions of the theory of contracts and the work of current laureates with the Deputy Director of the Research Institute “Development Center” of the Higher School of Economics in Moscow Valery Mironov.

– The work of Oliver Hart and Bengt Holmström, the Nobel Committee also notes, sheds light on how contracts help resolve conflicts of interest. Can we say that this is precisely what the very essence of the theory of contracts in economics comes down to? Or is this not entirely true?

– The theory of contracts deals with their various types - these are employment contracts, and loan agreements, and insurance contracts... And in the course of their preparation, the need arises not only for the reconciliation of conflicting interests, but also a number of other problems. They are associated, for example, with the “bounded rationality” of economic actors, when they do not really try to find the optimal solution, as well as with “opportunistic behavior”, when the parties pursue certain private interests that may harm the other party to the contract. Therefore, in addition to conflict resolution, contract theory also deals with issues such as increasing trust between parties or developing general terms of contracts and agreements. But it is important to understand that this theory does not provide clear answers: what exactly should loan agreements, insurance agreements or employment contracts be? She focuses on the fact that the optimality of a contract depends on the conditions of its signing in a specific situation and context.

The tools that this theory provides allow not only to find optimal solutions, but also to see the pitfalls that may arise during the preparation of certain agreements. As a result, contract theory helps to design better contracts that improve the quality of both public administration and interaction between the private sector and the public sector, as well as within the private sector itself.

In this case, the “sword of Damocles” dismissal will encourage the manager to work more or less conscientiously

​– In a 1979 paper cited by the Nobel Committee, Professor Bengt Holmström showed, in particular, that some optimal contract between employer and employee should include linking the latter's remuneration to a variety of factors. And not only, say, to the dynamics of the price of a company’s shares, if we are talking about assessing the effectiveness of its leader: after all, this price is also determined by many factors of the current market situation, which do not depend on him at all. But this seems obvious...

– On the one hand, the principle that was put forward by the authors in a 1979 paper – the principle of information content – ​​does not at all mean that a manager’s remuneration should depend on the maximum number of factors. It should rather depend on the outcome, which he may or may not influence. For example, tie the manager’s payment not to the dynamics of the shares of this company, but to the average change in quotes for this industry, that is, the growth of shares and other enterprises where managers have similar working conditions. Thus, this manager will be interested in adopting the experience of other companies in the industry or engaging in competitive “intelligence” - within some legally defined limits, of course. Thus, without including too many factors in the contract with him, we will stimulate the person to achieve significantly better results. And, by the way, the general principle that this work describes is that if the industry is exposed to high risk, then the emphasis should be on fixed compensation for the executive. That is, give him more freedom and include fewer factors in the employment contract with him. Conversely, if the company operates in a more stable environment, then more factors characterizing the manager’s work can be introduced into the remuneration section of the employment contract.

– What do you mean by high risks? Just the unpredictable risks of market conditions?

– By risk here we mean when the result of a company’s activities depends not only on the predicted efforts of the management team, but also on unpredictable factors. Such, for example, as changes in world prices, if, say, this is related to oil production. Or a deterioration in the situation in the global economy, if the company’s business is highly dependent on this factor. In such cases, by directly linking the manager's income to the company's business results, we will actually be punishing him for those failures that he could not prevent.

This theory does not give clear answers to what exactly loan agreements, insurance agreements or employment contracts should be...

– ​The main idea of ​​another of the mentioned works, by Professor Oliver Hart in the 80s, is that a contract should not simply define what exactly each party must do in some future situation. It is better if he determines who exactly will decide what to do in situations where the parties for some reason cannot come to an agreement. And what is the main conclusion?

– In addition to “full” contracts in economics, there are also “incomplete” contracts. They involve certain variables that simply cannot be spelled out in the contract in advance. No one knows how conditions can suddenly change... That is why it is so important to determine in advance the role of each participant in a given situation in the future. Moreover, someone will receive an advantage, while the other will have to submit. But in the end, as the authors showed, this turns out to be beneficial for all participants.

In such cases, by directly linking the manager’s income to the company’s business results, we will actually punish him for those failures that he could not prevent in any way

​– “Incomplete contracts,” as the Nobel Committee notes, are often used in the financial sector. Let's say there is an owner of some money or an entire company, and there is a manager he hires. The latter is called upon to manage the assets entrusted to him - with benefit both for the owner and for himself or his company. And the owner of the money can, for example, receive a certain percentage of the profit that the manager’s activities will bring. But at the same time, the owner, naturally, does not have the opportunity to control absolutely all the actions of the manager. Which, in turn, can open up for the latter, let’s say, a wide field for financial “maneuvers” that may run counter to the owner’s plans. And this kind of situation is also reflected in the works of the 2016 Nobel laureates in economics. What are their conclusions?

– In this case, it will be better if the contract is drawn up in such a way that the manager regularly transfers some fixed, but fairly high payment to the owner, and keeps everything else for himself. Then, statistically, over a number of years, a better result is achieved than if the owner of the assets receives annual payments as a percentage of the profit received. But in general, based on the theory of “incomplete” contracts, as long as the company shows fairly good performance results, the hired manager should have more freedom. But as soon as results deteriorate sharply, the owner, in full accordance with the contract, should have the right to fire the manager in order to hire another. In this case, the “sword of Damocles” dismissal will encourage people to work more or less conscientiously.

Let us recall that the Nobel Prize in Economics was established by the Central Bank of Sweden in 1968 - on the occasion of the 300th anniversary of the founding of the bank and as a prize “in memory of Alfred Nobel”. It was first awarded in 1969 - accordingly, now the prize will be awarded for the 48th time.

According to the will of the Swedish industrialist and inventor himself, prizes named after him have been awarded since 1901 in five categories - physics, chemistry, medicine, literature, and the Peace Prize.

LECTURE 5.

As we already know, institutions (rules) are divided into formal and informal. The source of rules is society; they then descend to the level of property rights and then to the level of individual contracts. Contracts reflect a structure of incentives and disincentives rooted in the structure of property rights (and the mechanisms for enforcing them); Thus, the range of options open to players, and the forms of organizations they create when entering into specific contracts, stem from the structure of property rights.

The contract considered by economic theory has the following features:

· simplicity;

· completeness;

· certainty.

Such a contract involves the exchange of a precisely defined product in a negligibly short period of time. But in modern complex economies, the subject of the contract becomes a product with multiple dimensions and properties, and the exchange stretches over time. Because of this multiplicity of dimensions and properties, ranging from physical characteristics to the nature of ownership of the product being exchanged, parties to a contract must negotiate a variety of terms. Moreover, the contract will usually be incomplete in the sense that during the life of the contract many previously unknown circumstances may arise which should (knowingly) be left by the parties to the contract to the discretion of the court or some third party authorized to resolve disputes ( For an analysis of the implicit and complex contracts typical of modern exchange, see Goldberg (1976).).

Not only do contracts provide a clear framework within which to obtain empirical evidence about forms of organization (and are therefore the primary empirical source for testing hypotheses about organization), but they also provide a key to how exchange participants will structure more complex forms of organization. In other words, contracts reflect different ways of facilitating exchange - either through firms, through the provision of special benefits, or other, more complex forms of agreements that lie on a continuum from direct exchange in the market to vertically integrated exchange. (Over the past 15 years, a huge number of works have been published within the framework of the theory of the New Industrial Organization, which contain a lot of useful material for us about the different types of organizations that arise to solve problems of complex exchange, and about the forms of management of these organizations. In particular, see Oliver's book Williamson's Markets and Hierarchies (1975), which initiated the scientific analysis of these issues, and subsequent works that build on it). We will consider the complex interaction between institutional constraints and the development of organizations in the last lecture.

But we should not forget: although explicit rules represent for us the main source of empirical materials for studying the state of economies in different conditions, the unambiguous relationship between the rules and the state of economies is very limited. That is, informal norms, rules, and enforcement mechanisms jointly determine the set of alternatives and the results of the choices made. Therefore, if we take into account only formal rules, we will come to erroneous, often misleading conclusions about the relationship between formal restrictions and the state of the economy.

5.1. Legal and economic approaches to the concept of “contract”. Classification of contracts

The concept of "contract" occupies a central place in institutional economic theory. Through a contract, the transfer of ownership rights to goods is carried out.

A contract in the legal sense is an agreement, an agreement that establishes the civil rights and obligations of the parties and specifies the duration of the agreement. A contract also refers to a civil legal relationship arising from an agreement and a document that sets out the contents of a contract concluded in writing. The forms of contract that are known today are a relatively recent phenomenon. Contracts as binding agreements protected by law do not appear until the 16th century. Central to the efficient use of resources is the principle of freedom of contract, which also means the right not to enter into a contract: no one can force an individual to undertake any obligation. This freedom of contract allows the private owner to delegate authority to the person who values ​​it most highly. The principle of freedom of contract is one of the main principles of Russian civil legislation (Article 1 of the Civil Code of the Russian Federation).

Contracts in economic theory are viewed not only as purely market agreements that prevail in a perfectly competitive market, but also as a “relationship” that the parties strive to maintain. The approach to contracts as relationships was first proposed by Eugen von Boehm-Bawerk (back in the 19th century, he expressed the idea that the exchange of goods or services (transaction) is actually an exchange of bundles of property rights).

Institutional economic theory tries to explain the variety of forms of contractual relations on the basis of differences in transaction costs and business practices with the desire of economic agents to reduce the level of these costs.

The problem of contracts and associated transaction costs is based on the formation of formal and informal rules that reduce these costs (or vice versa increase), which creates the basis for the emergence of the problem of completeness and incompleteness of contracts. The source of rules is society, then they descend to the level of property rights and then to the level of individual contracts.

Contracts reflect a structure of incentives and disincentives rooted in the structure of property rights and the mechanisms for enforcing them. Thus, the range of options open to players and the forms of organizations they create when entering into specific contracts depend on the structure of property rights.

If the parties to a transaction could enter into a complete contract that clearly defined what each party must do under all circumstances, allocated costs and benefits in any eventuality, and also provided for sanctions in the event of failure by one of the parties, then There would be no problems with the implementation of the transaction and the motivation of its participants. However, the requirements for a full contract are very strict and therefore practically impossible to meet.

Reasons for incomplete contracts:

The limitation of foresight of a person who cannot foresee all unforeseen circumstances;

Costs of settlements and negotiations when concluding contracts;

Inaccuracy and complexity of the language in which contracts are written;

Certain activities or information that have a significant impact on the benefit received by the parties may not be observable by a third party and may not be verifiable in court. Therefore, when entering into contracts, parties leave gaps that will be filled when the time comes to make changes.

Incomplete contracts allow the parties to respond flexibly to unforeseen circumstances, but at the same time create the problem of imperfect obligations of the contracting parties and the danger of post-contract opportunism. Therefore, when there is a choice between a more or less complete contract, then in preparing this contract some compromise is always achieved between protection against opportunistic behavior, on the one hand, and the ability to flexibly adapt to changing circumstances, on the other.

The reasons for the incompleteness of the contract described above can be defined by one concept - “bounded rationality” of economic agents, which was introduced into scientific circulation by G. Simon, who argued that the human mind is a limited resource and also needs to be saved.

Economic practice has developed three main types of contracts, each of which has certain properties and its own primary area of ​​application.

Table 5.1 Main types of contracts

1. A classic contract is impersonal in nature, and its distinctive feature is the presence of clearly stated clauses (“if... then” from the English “if...it”). Therefore, all possible future events are reduced to the present moment. In a classic contract, the identity of the counterparty does not matter - anyone can be a participant. The classical contract tends towards standardization. The written terms of the transaction take precedence over oral ones; the main emphasis is on formal documents. Once the transaction is completed, it ceases to exist. The method of organizing a transaction is the market. The contract is bilateral in nature: sanctions for violation of the contract are clearly stipulated, and all disputes regarding it are resolved in court. This type of contract is based on classical contract law. An example of a classic contract is a supply contract or a purchase contract.

A neoclassical contract is a long-term contract under conditions of uncertainty. Not all future events can be specified as conditions when signing it. Optimal adaptation to some events cannot be predicted until they occur. Therefore, the parties to such a contract agree to involve a third party, whose decision they undertake to comply with in the event of the occurrence of events not specified in the contract, so the contract acquires a tripartite character. Disputes regarding it are resolved not by the court, but by arbitration bodies. The method of organizing a transaction under a neoclassical contract is a hybrid (mixed) form. An example of a neoclassical contract is an employment agreement.

A hybrid form of transaction is a specialized way of organizing a transaction (governance structure), combining both elements of the market and hierarchy (or planning and administrative management), used in conditions of fairly strong bilateral dependence of counterparties and involving a compromise between the intensity of incentives and the ability to adapt to unforeseen circumstances. The concept of a “hybrid form of transaction” was proposed by O. Williamson.

Examples of hybrid forms of transaction include:

Long-term contracts (for 30 years or more), concluded, for example, between a power plant and a coal mining station;

Exclusive dealer contracts are agreements that the buyer will buy all of a given type of product from only one seller and will refrain from purchasing competing products;

Tie-in sales, in which the sale is organized in such a way that the buyer cannot purchase the necessary

goods and services to him without purchasing anything else from this manufacturer. For example, selling products through a network of exclusive dealers forces consumers to purchase additional services from the same network;

Franchising is a contract that gives an independent person the right to use the trademark and business methods of the parent company for a certain period (usually 20 years, and in Russia - 15 years). For this right, the investor pays an initial payment and royalty, i.e. compensation for the use of patents, copyrights, natural resources and other types of property, paid as a percentage of the cost of goods and services sold, in the production of which patents, copyrights were used rights, etc.

3. Relational (implicit contract, or obligatory) contract) is used in conditions of long-term, complex, mutually beneficial relationships between the parties. Mutual interest in continuing the relationship plays a decisive role here. The discrete nature of relationships inherent in the two previous forms of contracts completely disappears here - the relationship becomes continuous. Informal terms outweigh formal clauses; sometimes the contract is not drawn up as a document at all. The personality of the participants here becomes crucial. Therefore, disputes are resolved not by appealing to the formal law or the authority of an arbitrator, but through informal negotiations, bilateral bargaining, which usually requires an appeal to a higher administrative level in the hierarchy of the same organization. The norm to which the parties refer is not the original contract, but the entire relationship. An example of this type of contract is the so-called psychological contract, which is based on issues of organizational culture and employee motivation related to obligations of long-term care for the employee (for example, promotion, competitive salary, etc.) on the part of the employer, and the expectation in exchange for the loyalty of the hired employee's conscientious work.

However, hierarchy has its disadvantages, which are associated with the following costs:

Managers of internal departments have weaker incentives to maximize profits (reduce costs, improve quality, and innovate);

Within the hierarchy, significant bureaucratic costs arise.

According to K. Menard, there are four main factors that determine the differences between types of contracts.

1. Duration of the contract. The duration of the contract is usually related to the main characteristics of the transaction. The more specific the investment, the more important the continuity of the transaction, the longer the period for which the contract is concluded.

2. The degree of completeness of the contract in relation to the variables that determine adaptation to unforeseen circumstances: prices, quality, quantity, penalties. Empirical studies have shown that the degree of contract completeness increases with increasing resource specificity and decreases with increasing uncertainty. This means that a certain compromise is achieved between guarantees, the need for which is increasing

with increasing dependency and flexibility required due to changing transaction conditions.

3. Incentives, i.e., mechanisms used in contracts, which can be reduced to the following categories: piecework wages, hourly wages, distribution of shares among workers, return on assets paid to owners, and rent, which is divided between participants in a joint project.

4. Procedures for enforcing contract performance.

Each contract form has a specific mechanism for managing contractual relations.

1. Impersonal market mechanism. Approaches one-time and recurring transactions for standard items.

2. Arbitration. Applies to irregular transactions for goods of medium and high specificity.

3. Two-way management structure. This type is typical for relational contracts. The scope of application of such a control mechanism is regular transactions regarding goods of medium specificity.

4. Unitary management (hierarchy). Relations between contracting parties are governed by direct commands and orders, rather than by market signals.

So, all types of contracts differ in the role that price plays in them, the degree of specificity of the resources that are the subject of the transaction, as well as the presence of special guarantees for the fulfillment of obligations enshrined in the contract. These characteristics of contracts and alternative ways of organizing a transaction can be presented in the following table.

Table 5.2

Types of contract and alternative ways of organizing the transaction