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  • Report n°2: An integrated approach to economic and social contestability in business

Report n°2: An integrated approach to economic and social contestability in business

  • Table of contents
    • Exchange of batches of scrap metal under the constraint of defection, local challenging vigilance and Nimby
      • Economic contestability of the recycler: intangible assets and expertise differential

Economic contestability of the recycler: intangible assets and expertise differential

Location in a collection area with strong potential does not automatically imply that a recycler can manage to take in the optimal flow of materials for his branch. Independently of all considerations regarding competition with other recyclers, the capability of any given recycler to drain a flow of materials depends directly on his economic skill in (i) providing independent suppliers with the incitation to produce the necessary collection efforts, (ii) coordinating those efforts in the direction of the desired quality and (iii) maintain that coordination of trading relations sustainably over time.

The difficulty of the exercise arises when taking into account the transaction conditions on the input market. Transforming resources accessible to the collectors into batches of waste effectively delivered in accordance with the recycler's wishes is a sensitive exercise. In other words, the recycler's ability to encourage suppliers to collect the available material flows depends on informal economic mechanisms developed to coordinate and sustain the relations with the latter. The recycler paradoxically has to anticipate two opposing types of market failures, which logically stem from the transaction conditions. The first failure is characterised by the collectors offering a surplus of low quality materials and the second a scarcity of those materials! In other words, the recycler is exposed to a risk of market failure with respect to the spectrum of qualities he needs to meet the demand from his customer.

As we will see later, the ability to ward off market failures can not only positively affect the profitability of the activity but it can also help nip in the bud emerging risks in the area of economic and social contestation. Depending on the potential failure identified, the recycler's inability to keep unfavourable outcomes at bay may increase his contestability on the economic, environmental and safety level.