Institutional Lag (Coasian Framework)

Institutional lag describes the structural mismatch between technological capability (changing at software deployment speed) and institutional response (changing at the pace of organizational culture, legal reform, and human psychology). Previous transaction-cost reductions — telephone, email, internet — moved the Coasian boundary gradually enough that institutions could adapt incrementally over years or decades. The AI transition is moving the boundary faster than adaptation mechanisms can accommodate. The technology has already repositioned the equilibrium between firm and market; the organizations on either side have not yet reorganized to reflect its new location. The result is a period of costly disequilibrium where property rights are unclear, liabilities unassigned, and firms operate in institutional uncertainty about which activities to internalize and which to marketize.