Institutional Component of Production Costs

Abstract

In neoclassical theory, the value of production costs is determined by technology, subjective preferences, and the prices. The size and structure of production costs are "institutionally neutral". The costs and benefits of economic behavior are formed not only as a result of the interaction between factors of production or the game of prices, but also as a result of the institutional structure of social interactions. The result of social action is the emergence of institutional costs for the participants of production, which are based on the restriction of access to goods that have direct utility for the individual. These costs are added to the costs associated with technology and the structure of equilibrium prices and change the relative value of the relationship between costs and benefits in alternative economic behaviors. This has the effect of changing the size and structure of production costs, as well as the limit to which people are willing to bear costs. The institutional structure of social interaction affects the change in the value of transformational costs in the following forms: the change in the value of costs necessary to create a unit of income and the possibility of "moving costs"; the level of unproductive expenditure of resources; institutions act as a factor whose state has a significant impact on the normative value of production costs, are a social productive force. The function of institutions cannot be limited to minimizing transaction costs. The criterion for the effectiveness of the institutional structure of the economy is not only the amount of transaction costs, but also the amount of transformation costs.