Lecture 2 Flashcards
(15 cards)
What is the Neoclassical View of Markets?
- Maximising utility (profits) at the core of all economic activity
- The Invisible Hand
- Economic actors make rational choices based on all possible
information - Price will be determined at the point where demand=supply (Natural resources are infinite, and they have a market value that
accurately reflects supply and demand)
What is The Invisible Hand (Adam Smith, 1922)
- Economic agents pursuing their own interests will maximize
welfare
How does The Invisible Hand (Adam Smith, 1922) function in reality and what are its consequences?
Does not function properly -
o Bounded rationality - satisfy not optimize
o Transaction costs - not all costs are accrued
o Uncertainty – imperfect information
o Institutional settings – government interventio
Resulting in:
o Unmet social & environmental needs and neglected
problems
o Stable, but inherently unjust equilibrium
Define Market Failure :))
- Failure of a more or less idealized system of price-
market institutions to sustain ‘desirable’ activities or to
stop ‘undesirable’ activities.” - Occurs when the production or allocation of goods or
services by a market is suboptimal - Inefficient or inequitable (unfair)
Briefly describe and define the 4 market failure types.
- Externalities (Positive/Negative activates that do not accrue to the organization carrying them out) - Opportunities: SEE
- Inappropriate government intervention (political and economic self-interests resulting in climate change or social/cultural impacts) - Opportunity: environmentally beneficial industries or
tech - Imperfect information (information asymmetry):
Consumers and producers often don’t know about environmentally superior options, so:
- Consumers can’t compare products’ social/environmental impacts (e.g., unaware of cleaner energy choices), preventing them from preferring green alternatives. - Opportunity: usage of new tech
- Producers may overlook better, less damaging production methods and miss nascent markets for eco‐friendly goods, perpetuating degradation. - Opportunity: cleaner tech
- Inefficient Firms (Inefficient resource utilization & allocation causing environmental degradation and economic waste) - Opportunity: Create value from waste, Circular economy business models
What are the 2 types of Institutions and why are they important? (You got this)
- Formal - constitutions, laws, property rights, public and private
organizations. - Informal - traditions, sanctions, taboos and codes of conduct
Important because they set the rules of the game - missing in developing countries
Why do institutions matter (Market Perspective and in context of SE’s)?
Precondition markets to exist - intermediaries to support and facilitate the ability of firms to do business (Khanna & Palepu, 2010). - Financial viabilities for SE
Facilitator for social and economic development - Markets are an effective mechanism to attain sustained increases in living standards
around the world (World Bank, 2002). - Create social value
What is institutions relation to market failure?
When government structures are weak - markets fails and needs are
not met
Or
The rules of the game a tend to favor some actors over others
What are Institutional Voids?
Describe a situation where absent and/or weak institutional arrangements prevent those excluded by poverty from participating in market activities - Opportunity spaces
How do institutions work in developing countries?
Institutions exist, but they do not allow for and often even hinder economic and social development
Some examples of institutional voids please?
Labour Market Voids:
* Inadequate/or missing education, skills and job training institutions
* Fair matching employers with employees
Capital/Market Voids:
* Lack of financing opportunities, unbanked customers
* Lack of finance-based transaction intermediaries / infrastructure
Product Market Voids:
* Consumers lacking information and understanding of products and
services
* Absence of objective information-sharing platforms
Informal institutions replacing inefficient formal institutions:
* Reliance on informal institutions (e.g., “guanxi”)
* Biased toward the affluent and the politically powerful
Ideological system:
* Seclusion of women from public view (veil)
* Purdah is an ideological void where enforced seclusion of women restricts their access to markets and public life.
What are the 2 views on Institutional Voids on SE
Voids as Constraints:
* Lack of market- supporting institutions impede entrepreneurial
activities (e.g. resource acquirement, resistance# to change, vested
interests… )
Voids as Opportunities: Causes of social needs
* Creating demand for SE
* Stimulating SE action
* Allows for New Strategies
Entrepreneurial strategies to deal with Institutional voids:
Adapt - work around
Alter - change
Avoid - keep away from
Bricolage: Making do with “whatever is at hand” (Mair & Marti, 2009)
Informal Institutions (Mair & Marti (2009)
Informal Institution & Ideological System - Asymmetrical power relationships between different members of the community
* Elites ensure poor live in a relationship of dependence - “patronage”
* Gender inequalities, powerlessness and injustice.
* Purdah and patriarchy leading to social exclusion of women from market activities
