Residual income in the system of economic relations (institutional approach)
From the perspective of the institutional economic theory, the article presents a conceptual idea of residual income, reveals its nature, types and forms. Residual income can be official (formal) and unofficial (informal); it can be in the form of profit, gifts, bribes and kickbacks from employees (ordinary employees and managers), and so on. The author shows a mechanism of appropriating residual income within a commercial and non-commercial organization and at the State level. In commercial organizations, residual income should take a form of profit, and the owners of the organization should appropriate it, however, the opportunistic behavior of employees may lead to appropriation of the residual income of a commercial organization by the employees. In non-profit organizations, residual income should officially be a zero; however, the hidden purpose of creating such an organization may be earning residual income by owners (founders) in the forms other than profit. In this case, there is an effect of double “extraction” of residual income by owners and managers. The author considered two ideal models of the State from the perspective of generating and appropriating residual income, i.e., an exploitative State and a consensus democracy. In the exploitative State (a model of a stationary bandit, or the McGuire-Olson model), the Supreme Ruler (the stationary bandit) maximizes the residual (net) income, and in the consensus democracy such an income should be a zero. However, in both ideal types of State there arises an agent problem, when the State apparatus officially acting for account of the principal (the Supreme Ruler or the people), and at its expense actually maximizes the residual income. This situation causes a deformation of economic relations. Obtaining the right to appropriate the residual income can be a subject of a fight (a conflict), which ultimately leads to establishing a “balance” in distribution at the level of an organization or the State, which can be then violated due to the actions of individuals or groups of individuals redistributing the residual income in their favor.