Conventions and Structures in Economic Organization

Conventions and Structures in Economic Organization

Markets, Networks and Hierarchies

New Horizons in Institutional and Evolutionary Economics series

Edited by Olivier Favereau and Emmanuel Lazega

This book contributes to the current rapprochement between economics and sociology. It examines the fact that individuals use rules and interdependencies to forward their own interests, while living in social environments where everyone does the same. The authors argue that to construct durable organizations and viable markets, they need to be able to handle both. However, thus far, economists and sociologists have not been able to reconcile the relationship between these two types of constraints on economic activity.

Chapter 8: Where do markets come from? From (quality) conventions!

Olivier Favereau, Olivier Biencourt and François Eymard-Duvernay

Subjects: economics and finance, economic psychology, history of economic thought, institutional economics, methodology of economics


Olivier Favereau, Olivier Biencourt and François Eymard-Duvernay INTRODUCTION In a 1981 issue of the American Journal of Sociology, sociologist Harrison White asked the economic question par excellence: where do markets come from? He devised a sophisticated and heterodox model to answer that question. His model allowed him to identify structural conditions (related to costs and preferences) under which stable markets could emerge (or not). ‘Markets’ should be understood here as a self-reproducing system of niches for competing firms, in a price/quality space, rather than the Walrasian fictitious place, where a benevolent auctioneer applies the law of supply and demand. So markets become another exemplification of modern social network analysis, developed by Harrison White and his Harvard group since the beginning of the 1960s.1 In 1989, the Revue économique published a special issue entitled ‘L’économie des conventions’, to which two of the present authors contributed. All the papers collected in that issue tried to think anew about either markets or business firms, in a more comprehensive approach to coordination and rationality, combining economics and sociology. The common key to revisiting the usual models of firms and markets is the notion of ‘convention’, as a social representation on what could be argued, if required, as a ‘satisficing’ level of coordination, inside the relevant collective entity.2 Eymard-Duvernay’s paper showed that the existence of stable goods markets is linked to implicit collective agreements between buyers and sellers, on what defines quality: these ‘quality conventions’ are translated by firms into coherent ways of...

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