Incentives and transactions costs determine the way that the private sector organizes business activity, structures contracts and undertakes investment. Ultimately, productivity, competitiveness and economic growth depend on incentives faced by the private sector encouraging long-term investments and contracting. If the transactions costs of doing business are high and incentives promote short time horizons the productivity and efficiency of individuals, small businesses and companies is adversely affected. This in turn harms long run growth and the ability of the private sector to reduce poverty.
ERI’s work is based on the underlying philosophy that a business environment that promotes efficient private sector development requires well functioning markets that encourage competition and that long term contracting requires secure property rights, laws and related institutions.