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Institutions and Technological Progress

Institutions and Technological Progress

Journal of Economic Regulation, , Vol. 11 (no. 2),

One of the factors that influences the state of technological progress is the institutional structure of society. Institutions influence the economic process by creating a structure or social order of interactions between participants in production. Technological progress can be described as the process of creating a new combination of factors of production. The condition for creating such a combination is to create a form of social interaction between the participants of production that link the factors of production. The structure of social interaction generates private incentives differ from the incentives for modernization created by technical and economic conditions of production: the availability of alternative sources of income; lack of confidence and guarantees in the appropriation of its share of income; high cost of technical and economic modernization (transaction costs, losses associated with prohibitions, sanctions, etc.); values, routines, behavioral standards, the significance of which exceeds the value of production modernization. The motivation that is created by the technical conditions for modernization production is insufficient to create an incentive to invest in the existing institutional framework of production. The possibility of obtaining the income gains at the expense of technical modernization may not be of interest to economic agents. The border of technical progress is shifted below the level determined by technical and economic factors. The policy of industrial modernization implies the implementation of an adequate institutional policy and modernization of production. The functions of institutional modernization are to create an institutional environment that creates a structure of interaction between people on the basis of which there can be incentives for technological progress and conditions for such interaction, which is necessary for the creation of a new combination of factors of production.

Keywords: institutions; social interaction; technical progress; motivation; power asymmetry

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