This year Nobel
prize in economics has gone to Oliver Harts and Bengst Holmsstrom, the British
and Finland economists for the research work carried out in the 70s and 80s on
conract theory which has wide applicability from governance to constitution
law. All of us know real life events and
incidents revolve around contracts and indeed all transactions depend on implicit
or explicit contract: there are employment Contracts, credit contracts and
insurance contracts and so on .you will concede that better contracts and
improved institutions will go a long way in making the country strong.
Should
providers of public services such as schools, hospitals or prisoners be
publically or privately owned? Shoud teachers health workers and prison guards
be paid fixed salary or should their pay be performance based?.There is no
definite, unique or any conclusive answer. The economists raise this kind of
questions and with the help of the theory attempt to find the answer .
In this
connection I would like to quote Keynes from memory:
The theory
of economics does not furnish a body of settled conclusions immediately
applicable to public policy;.It is only a method rather than a doctrine an
apparatus of mind a technique of thinking which help the possessor to draw
correct conclusions”
The Nobel laureates
talk about the power of theory in real life situation .For eg, if the manger is
rewarded for his short term cash flow
management the long term heath of the
company may be affected. Very recently it has been found that privately managed
prisons are not efficient in the U S and they are thinking of bringing it under
government domain.
CONTRACT
THEORY HAS RELEVANCE FOR RESOLVIG CAUVERY WATER ISSUE AND PAY FIXATION FOR
ACDEMICS
Given the
compulsion I will read more in future.Right now I can make use of their frame
work to see the politics and ABSENCE of economics behind Cauvery issue. Why karnataka does not want to come under the
contract law and defy the constitutional law? Every contract involves some
conflicts and they must be resolved by the established contract law history and
some give and take in the agreement. But it is saddening to note all the canons
of economics and the system of governance are thrown to the dustbin and the so
called officers are keeping quiet .That rogue state wants to appropriate all
the benefits in a federation without
being monitored by any neutral agency in contractual terms ie they want an inefficient outcome for the nation and no
benefit at all to TamilNadu.This is against
economics, ethics and will amount
to dirty , divisive and destructive politics affecting the very stability of
the society.
This
is what I have been telling for the last one month . Now I have explained using this framework in a better way. why central government which is supposed to
enforce the contract and assist the
highest court of the land is also
behaving like a litigant not bothered about finding solution .Like our manager
it is also maximizing its capacity to mobilize the vote bank and desire to have
competitive edge over congress ie . To play politics! They also do not want to
listen to supreme court and get into any contractual obligations .Extend this logic to all micro level
contracts in all markets .Will there be
any economy ?It will be like a full
fledged disobedience movement against the economic integration of the country,and the nation will be plunged into chaos.I miss our former RBI
governor now whose world is in the realm
of ideas
Before I
conclude let me also apply the contract theory
to the new pay scales .It is
definitely a boon to the world of academics ie those who read teach and do
rigorous research work not cut and paste pseudo stunt .But there are many for
whom the scales and the compensation
when the theory is applied is an exorbitant and their own conscience will prick if there is one .There are empirical
evidences to show that you can become Dean without even any [publication} not
even writing letter to wife AND EVEN
WITHOUT TAKING A SINGLE CLASS more
sensibly and responsively one can become
Professor and attain the position of HOD .The recent surgical strike against
the VC WHO HAD SUBMITTED the bogus
resume and the callousness of the screening and selection committee and the gross irresponsibility of the great
academicians are the reminder that
contract theory is hardly enforced and that merit need not be the only criteria
for elevation to higher position.
This year Nobel
prize in economics has more practical applicability. It is only ideas not
vested interests which will rule in the long run but in the long run we are all dead as Keynes told.
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