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Market governance mechanisms (MGMs) are formal, or informal rules, that have been consciously designed to change the behaviour of various economic actors. This includes actors such as individuals, businesses, organisations and governments - who in turn encourage sustainable development.
Market governance is characterized by high-powered incentives and adaptability (i.e. flexibility). An example of an alliance structured with a market governance mechanism is a legal agreement between two organizations to distribute, license or export a particular product. The rules governing the exchange are dictated by contract law where each party is highly incentivized to act in their best interest, with the nature of the relationship being adaptable, suggesting that the terms of the contract can be changed or renegotiated at minimal costs.[1]
Well known MGMs include fair trade certification, the European Union Emission Trading System and Payment for Ecosystem Services (PES).
MGMs, meanwhile, are not to be confused with market-based instruments. MGMs, as a group, includes command and control regulations as well as regulatory economics. As such, MGM is a broader classification.
The success and failure of market governance mechanisms is highly political, and is therefore likely to require more than just formal changes to rules and regulations. Sustained and inclusive progress requires transformative change reaching beyond legal frameworks into cultural domains, altering peoples’ perceptions of what is ‘the norm’ and establishing new moral frameworks to guide market activities.[2]
Market governance does not require such significant idiosyncratic investments from the buyers and sellers. Without investing sufficient resources, intent, and time, market governance is just a simple buyer-to-seller relationship that is relatively standardized and straightforward (Ring and Van de Ven, 1994; Larsson et al., 1998).
TCE (transaction cost economics) demonstrates that the governance between independent firms can be crafted by the degree of asset specificity (Ouchi, 1980; Williamson, 1985; Lai, 1990; Stump and Heide, 1996), that is, transactions of the high asset-specificity form should be governed by the hierarchy governance mechanism; transactions of the low asset-specificity type should be governed by the market governance mechanism.
Buyer-to-supplier governance alone is not sufficient to drive positive change of supplier’s social and ethical conduct. If only simply deploying code monitoring, buyers from AEs may defend their brands or reputation against NGO or customer criticism, but cannot actively pursue meaningful improvement of supplier’s compliance. The overall reliance on buyer-to-supplier governance may create a system in which a supplier’s main objective is to pass the audit, rather than address the substantive issues that are the focus of the audit. In market governance, opportunism in interorganizational relationships may be controlled through threats (Gundlach et al., 1995). Even though, as a result, buyers from AEs must be aware that an emphasis on market governance (i.e. threatening, monitoring, or inspecting) may actually be more costly in the long run (Roth et al., 2008).
The Trust and Tracing game is an operationalization of the theory on market governance in a new institutional perspective. It enables research into the interaction between the four levels of analysis of Williamson. It places participants in a serialized asynchronous Prisoners Dilemma-like situation. This situation is called the Trader’s Predicament.[3] Netchains are another form of market governance.
If we treat organizational conventions as institutions and various types of market governance mechanism (trust and reputations, merchants' norms, third-party contract enforcement, "digital enforcement" and so on) as institutions arising in the commodity exchange domains, there may be complementary relationships between a certain pair of them.[4]
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Patch Adams (8/10) Movie CLIP - You Treat a Person (1998) HD
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WHEN ALL THE SUPER CARS CAME TO LIFE 😳 - #shorts
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INVISIBLE INFLUENCE: The Hidden Forces that Shape Behavior by Jonah Berger
Transcription
That's a very grave charge, son. Are you aware that it's unlawful to practice medicine without a medical license ? Yes, sir, l am. Are you aware that running a medical clinic without the proper licensing... can place both you and the public... in a great deal of danger ? ls a home a clinic, sir ? lf you are admitting patients and treating them... physical location is irrelevant. Sir, will you define treatment for me ? Yes. Treatment would be defined as the care of a patient seeking medical attention. Have you been treating patients, Mr. Adams ? l live with several people. They come and go as they please. l offer them whatever help l can. Mr. Adams... have you or have you not been treating patients at your ranch ? Everyone who comes to the ranch is a patient, yes. [ Murmuring ] And every person who comes to the ranch is also a doctor. l'm sorry ? Every person who comes to the ranch is in need... of some form of physical or mental help. They're patients. But also every person who comes to the ranch is in charge of taking care of someone else-- whether it's cooking for them, cleaning them... or even as simple a task as listening. That makes them doctors. l use that term broadly, but is not a doctor someone who helps someone else ? When did the term ''doctor'' get treated with such reverence, as, ''Right this way, Doctor Smith''... or, ''Excuse me, Dr. Scholl what wonderful footpads''... or, ''Pardon me, Dr. Patterson, but your flatulence has no odor'' ? [ Laughing, Murmuring ] At what point in history did a doctor become more... than a trusted and learned friend who visited and treated the ill ? Now, you ask me if l've been practicing medicine. Well, if this means opening your door to those in need-- those in pain-- caring for them, listening to them, applying a cold cloth until a fever breaks-- if this is practicing medicine, if this is treating a patient... then l am guilty as charged, sir. Did you consider the ramifications of your actions ? What if one of your patients had died ? What's wrong with death, sir ? What are we so mortally afraid of ? Why can't we treat death with a certain amount of humanity and dignity and decency... and, God forbid, maybe even humor ? Death is not the enemy, gentlemen. lf we're gonna fight a disease, Iet's fight one of the most terrible diseases of all-- indifference. Now, l've sat in your schools and heard people lecture on transference... and professional distance. Transference is inevitable, sir. Every human being has an impact on another. Why don't we want that in a patientldoctor relationship ? That's why l've listened to your teachings, and l believe they're wrong. A doctor's mission should be not just to prevent death... but also to improve the quality of life. That's why you treat a disease, you win, you lose. You treat a person, l guarantee you, you win, no matter what the outcome.
History
The term "market governance mechanism" was used by Baysinger and Butler in 1985 in their paper on the role of corporate law in the theory of the firm.[5] Then, Amashi et al., used the term to discuss the role of corporate social responsibility in correcting market failures.[6] And more recently, Shaping Sustainable Markets, a research initiative from the Sustainable Markets Group at the International Institute of Environment and Development, uses the term widely and have created a typology[7] to frame its work on the sustainable development impact and effectiveness of MGMs.
Classification
Market governance mechanisms can be organised into the following groups:[8]
Economic
Use price incentives to change behaviour.
Regulatory (Hard)
Use legal requirements to enforce or ban certain behaviours.
Cooperative (Soft)
Use agreements to encourage partners (other organisations, governments or individuals) to voluntarily change their behaviour.
Informational
Raise awareness of sustainable development (including poverty or environmental issues, for example) to change consumers’ and investors’ behaviour.
References
- ^ Proceedings of the 50th Hawaii International Conference on System Sciences. "Collaborative Distance: Multi-level Analysis Framework for Recommending Collaboration Structure and Safeguards" (PDF).
{{cite web}}: CS1 maint: numeric names: authors list (link) - ^ "Informality and market governance in wood and charcoal value chains" (PDF).
- ^ "Trust and Tracing game".
- ^ "An organizational architecture of T-form: Silicon Valley clustering and its institutional coherence".
- ^ [1], Baysinger, B. and Butler, H. 1985. The role of corporate law in the theory of the firm. The University of Chicago.
- ^ [2][permanent dead link], Amaeshi, K., Osuji, O., Doh., J. (undated) Corporate Social Responsibility as a Market Governance Mechanism: Any implications for Corporate Governance in Emerging Economies? University of Edinburgh.
- ^ Blackmore, Emma (May 2011). "Shaping Sustainable Markets: Research Prospectus" (PDF). International Institute for Environment and Development. Retrieved 2012-03-09.
- ^ "Shaping sustainable markets" (PDF).
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This page was last edited on 1 November 2023, at 14:14