Labor contract and transaction costs in the context of the formation of a favorable institutional environment of the firm
A significant component of the contract paradigm of institutionalism should be the labor contract, which is the adaptation of the firm to the conditions of uncertainty of the institutional environment. The main purpose of the article is to study the labor contract as a formative institution in the c...
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| Format: | Article |
| Language: | English |
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Zhytomyr Polytechnic State University
2025-07-01
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| Series: | Економіка, управління та адміністрування |
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| Online Access: | https://ema.ztu.edu.ua/article/view/335521 |
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| author | Yu.V. Ushchapovsky E.O. Kulak |
| author_facet | Yu.V. Ushchapovsky E.O. Kulak |
| author_sort | Yu.V. Ushchapovsky |
| collection | DOAJ |
| description | A significant component of the contract paradigm of institutionalism should be the labor contract, which is the adaptation of the firm to the conditions of uncertainty of the institutional environment. The main purpose of the article is to study the labor contract as a formative institution in the context of the uncertainty of the institutional environment and transaction costs based on bounded rationality.
It was found that the methodological tools of the contract paradigm of institutionalism can be applied to the analysis of the intra-organizational relations of the firm, provided that the labor contract is considered as a formative institution.
It was established that by concluding a labor contract, the firm seeks to avoid uncertainty by minimizing transaction costs. Different types of activities are significantly differentiated in terms of the possibility of their regulation and formalization in an employment contract. It is most difficult to formalize a contract for employees with a high level of qualification, which is due to their access to influence the formation of the institutional environment.
It was found that limited access to information weakens the effect of formal and informal institutions and provokes opportunistic behavior and increases undesirable transaction costs. The fight against opportunism should be directed in the following directions:
1) maximizing interdependence within a structural unit and minimizing interdependence between divisions of the company;
2) the costs of control and coordination within a structural unit should not exceed the costs of similar actions between structural units.
It was established that the conclusion of a contract involves solving the problem of minimizing transaction costs for checking the implementation of a future contract (ex ant – costs) and monitoring the implementation of obligations undertaken (ex post – costs). In the case of concluding an employment contract, transaction costs directly depend on the availability of the necessary information.
It is substantiated that in the process of information search, transaction costs for information collection and processing, as well as losses from opportunistic behavior, dominate; during the negotiation process, opportunistic behavior tends to be maximally manifested; at the stage of concluding labor contracts, intra-firm organizational relations become the object of primary interest. The fight against opportunistic behavior forces the company to incur costs for creating a control system. In order to prevent unauthorized access to the results of the company's activities by third parties, transaction costs for protecting property rights increase. |
| format | Article |
| id | doaj-art-55af27f2b0b04c6994762ea08efc62b7 |
| institution | DOAJ |
| issn | 2664-245X 2664-2468 |
| language | English |
| publishDate | 2025-07-01 |
| publisher | Zhytomyr Polytechnic State University |
| record_format | Article |
| series | Економіка, управління та адміністрування |
| spelling | doaj-art-55af27f2b0b04c6994762ea08efc62b72025-08-20T03:21:39ZengZhytomyr Polytechnic State UniversityЕкономіка, управління та адміністрування2664-245X2664-24682025-07-0111223439doi.org/10.26642/ema-2025-2(112)-34-39Labor contract and transaction costs in the context of the formation of a favorable institutional environment of the firmYu.V. Ushchapovsky0https://orcid.org/0000-0001-8760-4410E.O. Kulak1Zhytomyr Polytechnic State University, UkraineZhytomyr Polytechnic State University, UkraineA significant component of the contract paradigm of institutionalism should be the labor contract, which is the adaptation of the firm to the conditions of uncertainty of the institutional environment. The main purpose of the article is to study the labor contract as a formative institution in the context of the uncertainty of the institutional environment and transaction costs based on bounded rationality. It was found that the methodological tools of the contract paradigm of institutionalism can be applied to the analysis of the intra-organizational relations of the firm, provided that the labor contract is considered as a formative institution. It was established that by concluding a labor contract, the firm seeks to avoid uncertainty by minimizing transaction costs. Different types of activities are significantly differentiated in terms of the possibility of their regulation and formalization in an employment contract. It is most difficult to formalize a contract for employees with a high level of qualification, which is due to their access to influence the formation of the institutional environment. It was found that limited access to information weakens the effect of formal and informal institutions and provokes opportunistic behavior and increases undesirable transaction costs. The fight against opportunism should be directed in the following directions: 1) maximizing interdependence within a structural unit and minimizing interdependence between divisions of the company; 2) the costs of control and coordination within a structural unit should not exceed the costs of similar actions between structural units. It was established that the conclusion of a contract involves solving the problem of minimizing transaction costs for checking the implementation of a future contract (ex ant – costs) and monitoring the implementation of obligations undertaken (ex post – costs). In the case of concluding an employment contract, transaction costs directly depend on the availability of the necessary information. It is substantiated that in the process of information search, transaction costs for information collection and processing, as well as losses from opportunistic behavior, dominate; during the negotiation process, opportunistic behavior tends to be maximally manifested; at the stage of concluding labor contracts, intra-firm organizational relations become the object of primary interest. The fight against opportunistic behavior forces the company to incur costs for creating a control system. In order to prevent unauthorized access to the results of the company's activities by third parties, transaction costs for protecting property rights increase.https://ema.ztu.edu.ua/article/view/335521contract paradigmlabor contractbounded rationalitytransaction costsopportunistic behaviorinstitutional environmentcoordination and motivation of production activities |
| spellingShingle | Yu.V. Ushchapovsky E.O. Kulak Labor contract and transaction costs in the context of the formation of a favorable institutional environment of the firm Економіка, управління та адміністрування contract paradigm labor contract bounded rationality transaction costs opportunistic behavior institutional environment coordination and motivation of production activities |
| title | Labor contract and transaction costs in the context of the formation of a favorable institutional environment of the firm |
| title_full | Labor contract and transaction costs in the context of the formation of a favorable institutional environment of the firm |
| title_fullStr | Labor contract and transaction costs in the context of the formation of a favorable institutional environment of the firm |
| title_full_unstemmed | Labor contract and transaction costs in the context of the formation of a favorable institutional environment of the firm |
| title_short | Labor contract and transaction costs in the context of the formation of a favorable institutional environment of the firm |
| title_sort | labor contract and transaction costs in the context of the formation of a favorable institutional environment of the firm |
| topic | contract paradigm labor contract bounded rationality transaction costs opportunistic behavior institutional environment coordination and motivation of production activities |
| url | https://ema.ztu.edu.ua/article/view/335521 |
| work_keys_str_mv | AT yuvushchapovsky laborcontractandtransactioncostsinthecontextoftheformationofafavorableinstitutionalenvironmentofthefirm AT eokulak laborcontractandtransactioncostsinthecontextoftheformationofafavorableinstitutionalenvironmentofthefirm |