Rules, Regulations and Transaction Costs in Transition Bulgaria

administrative bodies.
The costs of time could be substantially reduced by putting in place an information network linking the units of
public administration. That would ensure a rapid and easy access to any public register and would make
unnecessary the visits to any other institution after the court.
III.A.2 Obtaining a permit to start up the operations
The start-up permit is the second stage of entry. More often than not, the legislation relative to this stage is
irrational and inadequately enforced.
Most governments in the world require entrepreneurs to comply with certain criteria, in order to start up some
types of operation. Government regulation is justified by the need to protect the health of citizens, quality, national
security or what is commonly referred to as "the public interest". Achieving these goals by way of government
regulation, however, has its alternative price: compliance with the procedures and requirements burdens the
entrepreneurs with costs of time 23 and financial expenses . As a result, some firms fail to enter the market in
question.
Any arrangements of this sort, regardless of whether they are labelled "licensing", "certification",
"co-ordination" or "registration", represent entry barriers. On the whole, they produce the same
economic result: restricting competition and increasing the cost of doing business in a given sector,
thus reducing market efficiency and, as a repercussion, the economic growth.
The Bulgarian legislation in force distinguishes among several different legal terms, such as: "license", "permit",
"certificate", "approval", etc. These terms, however, are similar from an economic point of view: they all mean a
document required by a legislative or statutory instrument and issued by a State or private institution to anyone
willing to carry on a certain business. For the sake of clarity, again, all those concepts with similar economic
content will be referred to hereinafter as licenses.
The following table displays the sharp increase in the range of activities for which licenses or permits were
required over the period 1989-1999.
Table 4
Year Newly-introduced licenses Existing licenses
1989 2 2
1990 4 6
1991 3 9
1992 1 10
1993 5 15
1994 6 21
1995 21 42
23 An experiment made by Hernando de Soto in 1983 in Lima, Peru, demonstrated that compliance with all legislative
requirements and procedures to open a small textile mill, without paying (many) bribes or using political connections,
took the team involved in the experiment 289 days. See: Hernando de Soto, The Other Path (1989).
14