Institutional Equilibrium in Redistribution Systems Peter Harrows 1. Introduction Contemporary economic theories recognize a row of factors influencing human behavior; material factors like precious resources or available technologies are not the only ones, various standards (rules), limitations, etc. Also belong among these factors defining which behavior is allowed or forbidden, I. E. Which behavior is desirable (right) and which is not.
Institutional economics that focuses on the issues of these standards and their effects on human behavior can, figuratively speaking, celebrate its success. Recent publications prove the development of institutional economics. On behalf of the foreign books we can name, e. G. Burton and Richter (2005), Change (2007), M©nard and Shirley (2008), Brochures and Callaghan (2008), Acceptance (2009). Let us mention a few Czech publications e. G. Moloch (2005), Fight (2008). Despite of this development, many questions regarding institutional economics still stay unanswered.
For one, the term institution has not yet been definitely determined. Fight (2008) states that the two basic approaches to defining institutions is as follows: 1. Institutions as a result of a game; 2. Institutions as the rules off game. Both approaches suffer from certain one-sidedness. If institutions are a result of games, then it must be asked, what defines the rules of these games. And if the institutions are the rules of the game, then it is necessary to determine whether the given rules are not the consequence (result) of some game.
In this text, we will keep to the usual understanding (in literature) of institutions as the rules of a game (see, e. G. North, 1990; North, 1991; Burton and Richter, 2005; Fight, 2008). The term game can be defined as an interactive economic situation, where decisions behavior) of a certain entity are effected by the decisions (behavior) of other entities and tend to effect the decisions (behavior) of other entities during which conflicts with other participants can occur (Mamas, 2002; Dooley and Filial, 2007).
Institutions can then be defined according to the definition from North (1991, p. 97) a “… Limitations of human interaction created by man. They create corresponding motivation of mutual exchange, being it of political, social or economic nature” . In concordance with literature , we shall distinguish institutions as formal and informal. An example of formal institutions is for instance the law while an example of informal institutions would be standard manners of behavior, morale, etc.
The theory of institutional economics is usually able to competently describe the effect of individual institutions on human behavior. As stated in literature (Fight, 2008; Acceptance, 2009), the question of evolution of individual institutions has been researched much less – thus the question, why do individual institutions start to institutions is to lessen the strategic uncertainty that is based on a world without Institutions, making it impossible to predict the behavior of a entity the respective being is in contact with.
Generally, no convincing answers exist why individual institutions have come into existence to lessen strategic uncertainty and why did some of these institutions go through considerable development and some have even ceased to exist. This paper explores the problematic of institution evolution, where institutional equilibrium is being reached (established) from the economical point of view. The division is as follows: The second chapter is based on the fact that al institutions start to exist in some kind of environment.
The most important characteristic of any human environment is the redistribution system – the redistribution of sources and property takes place among the members of this environment (system) . This is why the characteristics of a redistribution system and its influence on the evolution of institutions is offered – I. E. How games played in redistribution systems influence the evolution of institutions. The paper carries on showing that, for institutions to be able to fulfill their goal, they must be in mutual harmony, I. Effort to try and establish such harmony must exist. The harmony of individual institutions is Just one of the conditions of institutional equilibrium. This is not the only condition. This is why the third chapter isolates the term institutional equilibrium and defines further conditions needed to create such equilibrium. Further on, relations between institutional equilibrium and processes that are executed in redistribution systems are analyzed.
The paper explains why institutional equilibrium is not often created, what entities trying to reach this equilibrium must aka into consideration and what hinders them in achieving this equilibrium. The conclusion summarizes the findings of this paper. The presented theory in this text is based on the thesis, that we do not have to Just apply the historical method, which tries to describe how certain events took place, but we can also apply the theoretical- historical method when looking for answers regarding evolution.
The method states , when missing necessary historical data while studying the genesis of a spontaneous order, we can replace it with the concentration of a relevant prior principle or even a ROR discovered feature of human nature and put it in relation to known (empiric) conditions or circumstances. Among prior principles (Mimes, 2006) belong the facts that people act, that they satisfy their needs through action, that they use precious resources to satisfy their needs, that if people act in a certain way, then in this way, they strive to maximize their gain, etc.
These principles can be also used for the analysis of the evolution of institutions. 2 The Redistribution System 2. 1 Distribution and Redistribution By the term distribution, we will understand in its general sense, the dividing of monetary values expressed as pension, and materialistic values expressed as property and resources, that occur due to limit productivity of individual subjects and their production factors, offers and inquiries for these production factors of human (Frank, 1995; Minima and Taylor, 2006; Ellipse and Crystal 2007).
Distribution is the consequence (display) of the impact of market forces. The term redistribution will be used in situations where a game is trying to redistribute what has been already given by the former distribution. Distribution itself is partially effected by redistribution, cause (as also proved further on) a certain redistribution environment has existed from the beginning of human kind.
As a consequence of redistribution, the status of individual entities changes, redistribution effects the amount and even the character of production factors, that are owned by such entity, their human and social capital and thus their limit production – as a consequence of redistribution, individual owners of product factors are unequally productive and thus receive different income derived from their limit production as opposed to an environment where redistribution would not occur.
Because redistribution occurs in every society (see Chapter 2. 2), it is not possible to say, that pure distribution systems exist in a society, that would not have been effected in any way by redistribution. In case of distribution, the proportions at which individual members own pension and riches as expressed monetary value or resources and property as expressed in materialistic value before any redistribution are mainly the result of the performance (productivity) of individual members and other market factors.
On the other hand, in the case of redistribution, resources and property (expressed monetary value – income) are redistributed when some of these resources and properties (income) are taken away from a member of a given environment (system) and these resources and properties (income) or then given to other members of the given system. It is then possible to say, that due to redistribution, members of a system are rewarded differently than they would be based on their performance. Redistribution occurs on all social levels (e. G. State or supranational body, e. G. He European Union) – this level can be called a first class redistribution system (Harrows, 2009; Valentine and Harrows, 2009), but also on other levels (e. . Regions, municipalities, companies, families, etc. ) – these levels can be called upper class redistribution systems. 2. 2 Necessary and Unnecessary Redistribution Objective reasons exist for some redistributions. Mainly the fact, that in any system there must live people whose economic performance, capability of producing property and obtaining property for their livelihood is very small or even zero. Typical examples are children, old people, sick people, disabled people, etc.