1 The theory of dynamic efficiency

16 The theory of dynamic efficiency
transaction costs’, such a system would fail to achieve the ideal of dynamic
efficiency if, due to pure or genuine entrepreneurial errors, multiple opportunities
for profit remained undiscovered or were not created or seized.
Ultimately, despite the appearances, the transaction costs approach has
many of the deficiencies we covered with respect to the static dimension of
efficiency. Specifically, a comparative institutional analysis based on the different
transaction costs of each institution implies the assumption that these
costs are given and known, and that it is even possible to redesign an institution
to modify the transaction costs in any particular situation. Nonetheless,
the entire structure of transaction costs that is chosen as a frame of
reference in the analysis can change radically and without warning if an act
of pure entrepreneurial creativity leads to the discovery of new alternatives,
production possibilities and, in general, new solutions which entrepreneurs
had completely overlooked up to that point.
Consequently, as we shall see in detail, the initial distribution of property
rights can never be irrelevant from the perspective of dynamic efficiency,
rooted as it is in creativity and entrepreneurial coordination (not even in the
extreme case of a complete lack of transaction costs, as the Coase theorem
erroneously implies). In fact, the distribution of property rights, within the
ethical framework which makes dynamic efficiency possible and which we
will analyse later, is precisely what determines, in each specific time and
place, who will be motivated by the particular incentives necessary to awaken
entrepreneurial activity, with its dual aspects of creativity and coordination. In
other words, from the standpoint of dynamic efficiency based on entrepreneurship,
Coase’s theorem, regardless of how it is interpreted, is scientifically
invalid, since not even in a hypothetical, institutional scenario with no
transaction costs will the distribution of property rights be irrelevant when
dynamic efficiency is the goal. 42
The concept of dynamic efficiency in economics textbooks
The dynamic aspect of economic efficiency has been virtually ignored by
most writers of economics textbooks. Once again, this reveals the fixation
with comparative statics and equilibrium prevalent thus far among economists
and exposes the resultant urgent need for a paradigm shift to bring
in the dynamic analysis of markets, along with the concept of dynamic
efficiency.
From a sample of twenty economics manuals chosen among the best
known in English, Spanish, French, German and Italian, only four included
explicit mentions of dynamic efficiency. Furthermore, most of these honourable
exceptions provided only a very limited discussion of the concept
and failed to consistently incorporate the discussion into an overall analysis
to permit the evaluation in terms of dynamic efficiency of the different
institutions and alternatives covered by each textbook. An overview of the
most striking approaches to dynamic efficiency follows. 43