Market Tavern

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. 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. 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…