Rules, Regulations and Transaction Costs in Transition Bulgaria

IV. Conclusions
The review of existing Bulgarian legislation and the analysis of the empirical data prompt me to make the following
conclusions:
1. The identification, measuring and, mostly, the reduction of firms' transaction costs are of particular
importance to the Bulgarian economy at present, as the share of its informal segment tends to be between
22 and 40%. We cannot be sure about the exact dimensions of the shadow economy but it seems to
grow more dynamically than the registered one. This could mean that either many newly-formed firms
start operating "in the shades" or that firms operating in the daylight tend to go underground. In general
terms, the reason is that the transaction costs of operating in the daylight grow as compared to those of
operating in the shadow. Hence, the identification, measurement and reduction of transaction costs would
be critical in curbing the "grey" segment of Bulgarian economy;
2. The present study would be of some help not by calculating the arithmetical mean of entry costs in terms
of time and money but by identifying the underlying reasons for these costs. That could enhance any
further efforts to minimize such costs in future;
3. As a result of the lack of preliminary regulation impact assessment, many regulations in the country make
the firms incur transaction costs which are often completely unnecessary or hidden. In Bulgarian
legislation there are a lot of examples in support of this assertion;
4. The legislation often transfers the costs of enforcing and applying the rules onto the entrepreneurs or
introduces quasi-taxes which are compensated by income concealing and tax avoidance. The licensing
legislation as a whole and many other instruments could serve as good examples in this respect;
5. Further to the review of the legislation that affects the business environment in Bulgaria, the following main
groups of transaction costs have been identified as stemming from existing legal rules and from the
interaction with public authorities:
firm registration costs;
costs of obtaining a license, permit or registration of the business to be carried on;
operating costs relating to: legislative amendments; access to lending; search for and supplies of
the indispensable raw materials, goods and services; office maintenance and product marketing;
labour market and social security legislation; audits / inspections and reporting; debts to the
Treasury;
contractual costs (entering into and performance of contracts);
transformation and exit costs.
6. The transaction costs that entrepreneurs incur to register their firms are costs of time rather than financial
costs and are mainly caused by the thoughtless legislative framework and the lack of cooperation among
the bodies of public administration involved;
7. The transaction costs of obtaining licenses and permits are high and stem from the irrational and
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