The Governance Triangle: Economic Interactions in Civil Society, the State, and the Market

Interactions in civil society are personal and enduring, and as a result, identity and other-regarding preferences are important motivations. Here we add civil society to markets and states as a third form of governance of the economy, creating the governance triangle. We provide evidence that themes related to civil society have assumed substantially greater importance in economic research since the 1970s. A now-standard principal–agent model of employment in private firms reveals three characteristics of interactions in civil society: the importance of face-to-face interactions, social norms, and the private exercise of power. We show that market failures and other coordination problems can sometimes be more successfully addressed by civil society than by state or market governance. Civil society may have a comparative institutional advantage where conflicts of interest are modest and information available to state and market actors is limited. When based on us-versus-them forms of identity, however, civil society governance may promote preferences antithetical to a liberal and democratic society.