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

Anticipating social contestation and the lever effect

Where relationships between economic agents are regulated by contract, a lever effect has been identified between the principal operator and the agents that depend on his demands (Hommel, 2001). This highlights the relationship that may exist between two operators exposed to little economic contestation, but highly exposed and sensitive to environmental and health contestations. One may prompt the other to consider potential risks to the community that threaten him because they could give rise to social contestation, so that he can reduce his own exposure to that contestation. In this situation, the strategic mechanisms used to sustain transactions between the two operators are also the means by which potential risks to the community are taken into account.

In this context, the solutions to the problem of uncertainty over the quality of the goods exchanged are those that provide this lever effect. Of course, in this type of branch, the parties to the exchange will more naturally identify uncertainty over quality as a technical uncertainty affecting business performance, such as a malfunctioning shredder or an inefficient electric-arc furnace. However, this uncertainty also extends to the environmental and health externalities generated by the firm. These considerations will affect the customer downstream, who is also exposed and sensitive to social contestation, but who is in a position to identify exactly what sources of risk should be reduced.

diagram 3: high level of economic contestability giving birth to strategies to reduce threats of entry, with their effet on social contestability for the recycler
diagram 4: reduction of the degree of environmental contestation in a trading environment with a low degree of economic contestability