This paper addresses the comparative analysis of discrete institutional alternatives in organizing transactions among distinct economic entities. The theoretical framework for understanding this issue was introduced by Ronald Coase 80 years ago. Following this seminal contribution, a standard theoretical distinction now exists between the institutionally embedded set of economic exchanges (the transactions) and the institutional settings within which these transactions are organized, firms and markets being the epitomized polar cases. On the normative side, this approach facilitated better understanding of failures and flaws in the organization of numerous transactions and of how to fix them. Three examples are provided to illustrate the issues at stake: contracting on large diameter pipes for PJSC “Gazprom” infrastructure projects, contracting in commercial real estate, and determining governance mechanisms for companies facing significant switching costs in highly concentrated markets.

transactions, institutions, discrete institutional alternatives, contracts, market failures

Economic studies of institutions have long ago surpassed the stage of operationalizing key concepts, overcoming the initial Smith (1776 [2007]) approach of putting “the invisible hand” operating throughout markets at the core of economic analysis. Coase (1993, p. 4) clearly summarized this transformation of economic theory, emphasizing the need to include the broad variety of economic arrangements, with complex choices arising as a result. In doing so, the Coasian approach opened new opportunities to re-think previous topics and examine new avenues for promising areas of research.

This being said, the question of how to make economic theory more practical without losing the lion's share of its rigor and versatility remains entirely relevant. In our view, the issue of how to implement the conceptual apparatus of new institutional economics in a way that can help solve the numerous puzzles facing the economics of organization remains very high on the research agendas of theorists as well as practitioners.

Our paper does not pretend to solve these problems, of course. Rather, it focuses on a specific aspect, outlining a framework to examine two types of imperfections that plague discrete institutional alternative governance structures (hereafter, DIA). First, there is the now standard issue, following Williamson's rich contributions well-summarized in his 1996 book, concerning the obstacles that prevent choosing the DIA that can minimize transaction costs. This issue can be identified as the organizational choice problem, that is, which DIA to choose. Second, there is the problem of why once a DIA has been chosen, underexploited opportunities remain within this DIA, thus keeping transaction costs higher than they could be without switching to another DIA (which would involve significant transaction costs). This can be identified as the governance issue.

Endorsing this approach means that we focus on the choice of an institutional system for efficiently organizing economic exchanges (transactions), thus seeking positive economic analysis rather than regulatory precepts.

Consideration of institutions as relevant for understanding economic activities, and as departing from the “blackboard” institutions famously stamped by Coase, can no longer be regarded as a breakthrough in economic theory. This concept is now part of our theoretical background, including mainstream economics. Moreover, is it now generally acknowledged that institutions emit mixed signals (North, 1990 [1997]) concerning the definition of incentives to conduct economic exchanges which efficiently use resources and properly adapt to changing situations. It has long become a standard within new institutional economics to consider institutions and their associated rules as incomplete and imperfect (Eggertsson, 1990 [2001]; Furubotn and Richter, 2005). Accordingly, identification and examination of the coercive mechanisms needed to fill the gaps and enforce the rules are now substantial parts of the research agenda (Williamson, 1996; Greif, 2006), as illustrated by the literature on regulation (Laffont and Tirole, 1993; Laffont, 2005).

Similarly, there is hardly any serious dispute that institutions are diverse and that their impact on the organization of economic activities is hard to assess. Nevertheless, there are substantial contributions intended to present a theoretically structured classification of this diversity of institutional arrangements (see Greif, 2006; Acemoglu and Robinson, 2012). More exploratory (and controversial) are the numerous contributions referring to these typologies to comparatively assess the impact of specific institutions on the functioning and development of economies in various countries. Illustrative in that respect are North et al. (2009), Acemoglu and Robinson (2012) 1, and in a more controversial manner, the World Bank series on “Doing Business” (first published in 2004).

Over 30 years ago, Williamson (1985), in his “Economic institutions of capitalism,” already noted that not all arrangements are available or feasible. He encapsulated this issue in what he identified as the principle of “weak form selection”. According to this principle, a realistic positive analysis must consider only those DIA that are available and implementable in a specific institutional environment. In doing so, Williamson contributed to operationalize Coase's ideas about the nature of the firm (1937 [1993]) and the problem of social costs (1960 [1993]). It should be noted that this “principle” intended to capture not only the idea of imperfect institutions but also possible gaps in the rules for selecting governance mechanisms aligned with transaction attributes (frequency, uncertainty, and asset specificity).

This issue of consistency between transaction attributes and the governance mechanisms (the DIA) adopted to conduct these transactions is even more sensitive to critical transactions. Critical transactions are those associated with strong complementarities, so that their analysis requires looking at the chain of transactions, as later explored and well-illustrated by the case of network infrastructures (Kunneke et al., 2010). The central hypothesis underlying these different analyses is now well-known: the greater the consistency (or “alignment”, in Williamson's vocabulary) between the transaction attributes (or a chain of transactions) and the governance mechanisms (or DIA) supporting these transactions, the lower the expected transaction costs will be. This approach allowed the exponential development of the literature on the trade-off between using market mechanisms or performing actions in-house (the infamous “make-or-buy” trade-off), a framework later extended by the integration of other institutional arrangements identified as “hybrids”.2

The initial efforts by Williamson to make Coase's concepts operational were summarized in 1987 at a conference celebrating the 50th anniversary of the publication of “The nature of the firm” (Williamson and Winter, 1988 [2001]). These contributions overlapped with efforts by North to introduce the Coasian approach in analyzing “the rules of the game” at the level of macro-institutions (see North, 1981, 1990 [1997]). The combination of these two extensions of the Coasian perspective, one focusing more on the micro-level of DIA, the other on the macrolevel of the institutional environment, gave a strong impulse to the development of research in new institutional economics. The 1990s witnessed blossoming contributions partially reviewed, with some emphasis on the methodological issues at stake, in Eggertsson (1990 [2001]) and Furubotn and Richter (2005). The domain covered by the new institutional approach expanded rapidly and in numerous different directions and disciplines during the 1990s. In the beginning of this century a handbook summarizing these developments required to mobilize an extended group of internationally reputed researchers, including Coase, North, Ostrom and Williamson (Ménard and Shirley, 2005).

This very short overview of events in the field of new institutional economics does not claim to cover the primary issues at stake. Particularly, this summary does not provide exhaustive information regarding the methodological aspects of the implementation of a research program that mobilized researchers from disciplines as different as economics, management, political sciences, legal studies, and anthropology! Several methodological aspects are discussed in Eggertsson (1990 [2001]), Ménard, (2001), and Furubotn and Richter (2005). From the above publications, we only wanted to focus on the broad picture, with little consideration so far for the normative consequences of this new research program. New institutional economists have been very cautious in that respect, with the subtlety of their analysis of institutions and institutional arrangements making them fully aware of what Coase noted repeatedly, notwithstanding his influence on policy-makers, as synthesized in a strong statement late in his career: “There are so many wrong ways of doing things and so few right ones [emphasis added]” (Coase, 1999, p. 5).

At the micro-level of the alternative DIAs among which agents can organize their transactions, no solution is optimal. As noted by Williamson, a comparative approach is in order: “Although marginal analysis is sometimes employed, implementing transaction cost economics mainly involves a comparative institutional assessment of discrete institutional alternatives [emphasis added] — of which classical market contracting is located at one extreme; centralized, hierarchical organization is located at the other; and mixed models of firm and market organization are located in between” (Williamson, 1985, pp. 41–42). This rule can be considered relevant not only for transaction cost theory as implemented in the area of the new institutional economic approach examining the choice among organizational arrangements with their associated incentives and adaptation mechanisms (Williamson, 1996, Chap. 4) but also for the even more complex analysis of the changing institutional environment, with its various combinations of behavioral prerequisites and resource characteristics (Shastitko, 2013b). Whether we look at economic policies or business strategies, discretionary decisions must be made when choosing a DIA. This hardly means that the choice is optimal among all available and achievable alternatives.

Indeed, it became already clear over 40 years ago3 that there are a limited number (although usually more than one) of viable mechanisms in a market economy for coordinating the actions of economic entities, and that these alternatives by far exceed the domain covered by the price mechanism. This diversity cannot be reduced to the representation of the firms by their production function as it was (and often remains) mainly characterized in neoclassical theory, at least until the late 1970s. What we have learned from Coase, Williamson, and others is that there are complex intra-firm mechanisms of coordination that transcend the role of the price mechanism. Hence, the firm is characterized as a “hierarchy” by Williamson. This opening of the “black box” of the firm enabled examination of the comparative advantages and flaws of the coordination mechanisms operating within a firm. Thus, it was possible to clearly differentiate the new institutional approach from the perspective promoted by the Austrian school of economics, in which alternatives are reduced to the comparison between market competition and a centrally planned and managed economic system, with the former benefiting from greater opportunity to capitalize on the diverse knowledge of the variety of actors (Hayek, 1945).4 This opposition between the two approaches remains true, notwithstanding recent efforts to surpass the limits of the Austrian paradigm (Langlois, 2007, 2013; Sautet, 2000).

An important step in the development of new institutional economics and its analysis of the variety of DIA has been the increasing concern with arrangements that are distinct from both markets and integrated (hierarchical) arrangements. Identified as hybrid arrangements by Williamson in his seminal 1991 paper5, it has been argued that these institutional arrangements among economic entities that maintain distinct property rights over their specific assets while sharing some decision rights (and in some cases, property rights, as in joint ventures) can offer superior alternatives to the polar cases of “markets” and “hierarchies” (Ménard, 2004, 2013). They can do so by enabling collective adaptation to changing situations while simultaneously preserving strong incentives for parties that remain residual claimants (Hart, 2001). They can achieve these effects through a subtle combination of shared rights (Ménard, 2013, 2017) that allows the creation of buffers against uncertainty through increased cooperation.

However, there remains an important methodological question concerning the actual implementation of this theory, either in empirical research, or more so, as guidance to decision-makers: exactly which DIAs do we compare? Indeed, what we must do on the one hand is to compare existing institutional arrangements to potential ones, as already noted by Masten et al. (1991). On the other hand, since the model is static, it is often implicitly assumed that in a competitive environment, the prevailing governance modality: market price mechanism, relational contracts among hybrids, and hierarchical coordination in firms are all designed in such a way that alignment allows to reach the best achievable result. Indeed, were this not the case, the question would arise regarding the extent to which the actual result deviates from the potential, achievable one, which itself is an essential element for assessing the comparative advantage of a given governance mechanism.

Comparing DIAs can therefore be performed along different dimensions, a view partially reflected in the concepts of “market for institutions” and “competition of institutions” (Pejovich, 1996; Tambovtsev, 2001b). In that perspective, competition among alternative institutions could ultimately arrive at one arrangement prevailing over others and becoming the common feature used by agents facing similar economic situations, while progressively eliminating alternative arrangements.

However, this approach introduces a dynamic, long-term perspective that relies on a sort of natural selection process (see already Alchian, 1950). Meanwhile, the prevailing methodology currently focuses on short-term selection among discrete institutional alternatives, with most attention paid to the transaction attributes that make one DIA a better fit than its competing arrangements, for example, when determining the specific conditions under which hybrids may benefit from comparative advantages over pure market price mechanisms. In a sense, this interpretation could be related to the concept promoted by Buchanan (1994), who emphasized the duality of goods, which intends to combine the physical and transformational characteristics of goods captured by production functions and the transactional traits accompanying their exchange, which thus introduces the institutional dimension.

The methodological difficulties in implementing the transaction cost approach provide grounds for the distinction we have introduced between the imperfections and biases regarding the internal organization of a specific DIA (thus providing insights for its comparison with the performance of alternative DIAs) and the imperfections and biases in the institutional mechanisms at work in the trade-offs among these arrangements (Shastitko, 1998). In other terms, there might be methodological advantages in sharply distinguishing events within a specific institutional setting and those at the frontier, where the arrangement is in competition with alternative forms. Along with other advantages, this distinction may facilitate understanding why regulation should remain limited to the conditions of competition at the boundaries of institutional arrangements (where they interact), without comment on the internal organization of alternative DIAs.

The distinction could also provide a foundation for the two forms capable of monitoring DIAs noted by Shastitko (2013a), the “regulatory market” and the “liberal market”. According to this research, the former market is characterized by a certain propensity to interfere with the internal organization of DIAs, while the latter tends to limit its function to events at the frontier where alternative DIAs interact.

However, in what follows, we do not elaborate on the characteristics and debates regarding these two approaches. Rather, we focus on the more specific problems raised by the internal characteristics of a specific DIA (the first type of potential imperfections or flaws). Let us assume that in addition to the existing structural arrangement of a DIA, another modality of organization is possible within the same DIA. The issue for decision-makers then becomes not to choose another DIA (as would be the case with the second type of imperfections and biases), but rather to adjust the existing one. In other terms, we propose a methodological switch, refocusing the attention on the possibility that the same DIA may be associated with different levels of transaction costs. The literature on plural forms, in which one firm uses different modalities for procuring its inputs (e.g., making an input partially in-house, acquiring some amount of it through specific agreements in a well-delineated network, and supplying yet another part through competing markets), can partially illustrate the issues at stake (Ménard, 2013).

Difficulties in empirically assessing these situations notwithstanding, this formulation may enrich our perception of institutional flaws along the two dimensions we have identified, as well as the persistence of inefficient institutional arrangements, even when they are unambiguously “second best.” It may also facilitate understanding the debate among scholars from different fields concerning whether it is better to make changes within an existing DIA or to design complex mechanisms for switching across DIAs. For example, a firm may have market power over certain goods or services, which signals a failure of the price mechanism. However, this is not necessarily a sufficient condition for motivating the emergence of government regulation, which typically occurs through monitoring tariffs. Alternative options might be available and admissible with respect to an efficient organization of the production and/or circulation of goods and services at stake. This might occur, for example, when the industry regulator (or other institution linking the general rules to the actions of those operating within these rules) allows some interaction between this monopolistic agent and the related parties, considering the specific business activities involved as well as other risks arising from anti-competitive behavior (see already Joskow, 2002; Radchenko et al., 2013; Avdasheva and Kurdin, 2013; Radchenko and Shastitko, 2013). Indeed, as noted by Stiglitz (2001) in his Nobel lecture, a flaw may not just be compensated for by replacing it with another structural alternative, but must be removed altogether. In other terms, a badly designed market regulation may well destroy the market under consideration. Related to our example above, the implementation of measures aimed at facilitating market entry for new players and creating incentives for major market players to reevaluate the resulting risks may induce the latter group to abandon the market. Meanwhile, the new players might not have the technical expertise, financial capacities, human resources, etc. to fill the void thus created, so that eventually the entire market collapses.

All these considerations suggest an important lesson from new institutional economics: apart from the now well-established view that there are alternative ways to organize transactions (different DIAs), there are also different arrangements with different tools to monitor interactions within the different DIAs that operate in the economy. At stake is the design of adequate institutional governance mechanisms (Tambovtsev, 2001a), with appropriate evaluation of their regulatory effects (Kryuchkova and Shastitko, 2006; Shastitko, 2010).

In his influential paper summarizing some central lessons of the new institutional economics, Williamson (2000, p. 597) suggested making distinctions between the different levels at which institutions operate, with second-order institutions identified as what we have designated as DIAs (in Williamson's vocabulary, “governance structures”). Shastitko (2014, p. 52) noted the importance, from that perspective, of analyzing the adequacy of economic policies with the tools these ideas provide. Four reasons motivate this approach.

First, there is no such thing as perfect institutions. Accordingly, the design of institutional rules obeys a sort of “systematic selective blindness”, with attention focused on a very limited set of features. The result is a gap between the chosen arrangements and the actual structure of transaction costs. With respect to designing economic policies, one way to circumvent this problem is to involve the concerned groups in policy design. This approach may facilitate learning about the expected effects rather than depending at best on the postfactum revelation of these effects. However, a drawback to this solution is the risk of capture and/or the risk of what Spiller (2009) identified as “third party opportunism”.

Second, decision-makers must choose among available, and by definition, imperfect alternatives. However, what about the potential availability of superior alternatives, which can be assessed only through comparative evaluation of the different transaction costs involved? Beyond the theoretical and empirical difficulties of assessing these costs, which requires identifying and differentiating DIA with sufficient “granularity”, we know that very often we learn from decision-makers who are making choices by assessing DIAs through direct importation, transplantation, expansion in a different direction, or any combination of these (Polterovich, 2001; Kuzminov et al., 2005; Polishchuk, 2008).

Third, assessing the comparative advantages and flaws of DIAs requires not only examining their characteristics independently from their environment (e.g., their internal structural properties) as indicated above but also investigating their properties which are sensitive to the institutional environment. For example, intellectual property rights protection in the EU or the U.S. is associated with possible legal abuse, which leads to restricted competition, for example through the creation of patent pools and patent ambushes. In such contexts, selecting a DIA may therefore require finding a compromise between protecting intellectual property rights and protecting competition. This compromise might be more beneficial to social welfare than abandoning the patent system altogether or consistently using anti-monopoly immunities. This issue is the topic of heated debates in the contemporary context of developing Russian antitrust authorities and regulation (see, e.g., Shastitko, 2013c).

Fourth, an essential element in designing a DIA or choosing among possible DIAs depends not only on the “rules-of-the-game” as developed, for example, by competition authorities but also on the enforcement mechanisms that can ensure their observance, either through sanctions and penalties or by facilitating adaptation to changing circumstances through flexible rules. There is a very difficult trade-off here between rigidity in rules, which prevents discretionary (and arbitrary) interference from regulators and/or policy-makers, and flexibility, which makes changes easier but risks creating a muddy terrain for organizations. This trade-off also faces the problem of how to maximize social well-being: how can we determine whether a given option is the best or is merely the most likely one (Zerbe, 2006)?

This list of imperfections, biases and obstacles that second-order institutions must face is not exhaustive and leaves open many questions. For example, exactly what kind of information is needed to compare DIAs — ex ante as well as ex post; who is involved in collecting and analyzing this information; how can the expected results be compared; and how can they be compared with the actual results of the selected option? Finally, what normative actions can be deduced from the results obtained?

Let us illustrate some of the points introduced above by using as a starting point well-known figures proposed initially by Williamson (1996, Chap. 4). These figures summarized the reasoning when it comes to the trade-off among discrete institutional alternatives. We transform them in order to illustrate the impact of a transition from one type of arrangement to another one. First, let us focus on the choice of a DIA (or “mechanism of governance” in the vocabulary adopted by Williamson in that paper) for organizing a transaction. Two attributes of this transaction are taken into account: the degree of specificity of assets required to deliver the good or service for which the transaction is organized; and the uncertainty surrounding this transaction (Fig. 1).6

Fig. 1

Conditions for choosing structural alternatives subject to the effect of hybrid asymmetric design and hierarchy.

The vertical axis U represents the degree of uncertainty, and the horizontal axis K represents the degree of specificity of the assets (or resources, typically investments) required. AB is the demarcation line between “Market” and “Firm”, which varies according to the combined degree of uncertainty and specificity; BK1 is the demarcation line between “Market” and “Hybrid” for managing transactions facing moderate levels of asset specificity and comparatively low levels of uncertainty; BK2 and BK3 indicate two possible demarcation lines between “Hybrid” and “Firm” in the management of transactions, with a key role for asset specificity when uncertainty remains at relatively moderate levels. We introduce two possibilities to demonstrate how we can use analytical tools of transaction cost economics to understand the factors that can favor a change in DIA. In the example above, a change in the degree of specificity of key assets results in a different trade-off between these alternative DIAs.

Figure 1 shows conditions related to these two key transaction attributes (uncertainty and specificity of assets) central to the trade-off among the three basic structural alternatives for organizing transactions, i.e., the price mechanism (market), relational contracts (hybrid), or hierarchy (firm). First, note that these are “pure” forms; in the real world, frontiers between these alternatives are blurred and coordination mechanisms (prices, relational contracts, hierarchy) can also play roles beyond the “pure” forms. Second, as suggested by this figure, there are multiple possible combinations between the two variables (attributes) of the underlying model, so that various arrangements can fall within the areas delineated by the border lines, as illustrated by the (K*; U*) combination.

Another aspect of the transaction cost approach to the trade-off among these alternative arrangements (DIAs) concerns the forces that influence agents to select one form rather than the other. As mentioned above, Figure 1 builds on transaction uncertainty and asset specificity to explain the existence of alternative modes of organization and the resulting possibility of trade-offs among them. However, what pushes agents to select one form rather than another? Another development proposed by Williamson (1996, Chap. 4), which is at the foundation of a popular heuristic model summarized in Fig. 2, is that decision-makers have strong incentives to search for the transaction cost-minimizing mode of governance (and therefore DIA), either because they are operating in a competitive environment that pushes them towards cost-minimizing strategies, or because although they have strong market power in a weakly competitive or even monopolistic environment, they want to maximize their returns accordingly.

Fig. 2

The forms of institutional agreements in the cases of realizing or not realizing conditions for minimizing transaction costs.

In Figure 2, the horizontal axis again indicates the degree of specificity of assets at stake in a given transaction, while the vertical axis summarizes the governance costs involved in the different arrangements (DIAs). The shape of the curves corresponds to hypotheses (to be empirically tested) concerning the evolution of governance costs when attributes vary (in this illustration, the specificity of assets). For example, the costs of organizing a market transaction increase rapidly when the required assets become specific, because the party that needs these assets becomes heavily exposed to opportunistic behavior from an increasingly small set of suppliers. The same reasoning applies to the two other curves (for hybrids and firms respectively). Now there are values where these curves intersect (e.g., at A1 (K1; G1) or A2 (K2; G2), at which points there are incentives for cost-minimizing decision-makers to switch from one DIA to another (e.g., from market to hybrid, and from hybrid to integrated firm respectively). Not being at the inferior borders of the curves, depending on the level of specific assets in this illustration, means that decision-makers have made choices that keep them away from their best strategy. Points such as A′ can be interpreted as analogues to the X-inefficiency of Leibenstein (1966), with the qualification that, contrary to the position adopted by Leibenstein, in the Coasian–Williamsonian approach this does not occur only under conditions of monopoly or tightly constrained competition. Therefore, points such as Am′ (K′; Gm′) and Ah′ (K′; Gh′) suggest poorly designed discrete arrangements, which represent market arrangement and hybrid arrangement in these cases, respectively.

Despite the simplifications involved in these figures and the accompanying reasoning, the considerations above provide essential indications, based on the building blocks of the Coasian–Williamsonian approach, of the existence and potential imperfection of second-order institutions. However, what this model does not capture are the reasons why imperfect second-order institutions persist over time. Different hypotheses can be made to explain this resilience, e.g., factors rooted in the institutional environment (such as inefficient regulations), learning effects that may create advantages for certain DIAs despite their misalignment with the attributes of transactions they organize, etc. Much remains to be done, particularly with respect to understanding the impact of regulation and state interventions. In what follows, we present three business examples from Russia suggesting the lessons that can be learned regarding economic policies.

The distinction between the imperfections and biases affecting the choice of one DIA over others and those affecting the internal organization of a specific DIA (once it is chosen) has led us to propose a methodology separating the issue of choice among available DIA options on the one hand, and the ex post evaluation of specific DIAs once they have been chosen, on the other hand. Implementation of this methodology requires going beyond general principles and acquiring specific knowledge with substantial details concerning the time and circumstances under review, particularly if normative conclusions are expected.

We now turn briefly to the analysis of three different cases from the Russian context. The first example concerns the production and sale of large-diameter pipes for infrastructure projects by Gazprom PJSC, in which the state played a key role upfront. The second example concerns the building of contractual relationships for leases with a “foreign exchange rate component”, in which the role of the state was minimal, but business practices inherited from the history of contractual relationships were a major component. The third example concerns the choice of governance mechanisms among companies operating in highly concentrated markets with considerable bilateral transition costs, which is illustrative of the problems that arose with corporate privatization during the 1990s.

In this paper, we focused our attention on two types of imperfections and biases that interfere with the organization of transactions. First, there are flaws (the first type of imperfections) arising from what Williamson identified as the “weak selection” constraint, which comes from the fact that we can compare only a limited set of implementable DIAs. This limitation raises the question of whether those alternatives are the only ones available when measuring the effectiveness, in terms of transaction costs, of the solution selected. Another issue that we have identified (the second type of imperfections and biases) comes from the difficulty in assessing available options within a given DIAs (once one has been implemented). Too often, flaws are examined with respect to the market structure with little consideration for the imperfection of prices, not to mention the internal imperfections of alternative governance mechanisms (hybrids, hierarchies). In this paper, we have also shown an example of these flaws with the case of commercial lease contracts.

As a result, there are two questions that “selective intervention” (Williamson) must solve. (1) Under which conditions should one DIA replace another, and at which transaction costs does this switch represent a valuable solution? (2) What are the possibilities and costs of modifying the internal configuration of existing alternatives to improve its performance by reducing its cost of governance while solving potential distribution conflicts? What our examples showed is that there are institutional aspects involved in both issues.

Therefore, when discussing the flaws of a given institutional system, it is not sufficient to systematically presume the comparative advantages of another DIA, which is the authoritarian argument developed by market-oriented scholars and decision-makers. It is also necessary to look at the circumstances which led to the resulting organizational arrangements and to consider the possible actions that could directly improve, or could facilitate internal improvement of the original DIA parameters, which could thus make the switch to an alternative DIA a Pareto-inferior situation.

However, such research is demanding. It requires not only an in-depth knowledge of the circumstances (including their historical dimensions) and properties under which structured economic exchanges (transactions) are organized but also an understanding of the bargaining power and interests of the influential groups involved. This formulation of the question explains the problem of institutional design based on the idea of importing institutions.

The relevance of this approach with respect to Russian practices in contractual relationship management is particularly significant if we consider the existence of a broad class of unregulated situations that expose adaptation of contractual relationships to arbitrary methods of redistribution of rights and titles. Therefore, a close examination of which possible course of action is optimal is essential, as is the consideration of which of the least “wrong” options is most likely to be implemented.