Mechanism of Governance of Economic Relations

The problem of the governance of economic transactions arises from the fact that they are sequential. This creates uncertainty regarding the fulfilment of implicit or explicit contracts. Institutional economics understands this uncertainty as arising from opportunism and seeks a solution in specialised contract enforcement institutions. Economic sociology understands the uncertainty as a result of misunderstanding and finds a solution in mechanisms of governance that, in addition to sanctions, allow for coordination among participants in a transaction. In this paper, we confront the arguments made by sociology and economics regarding the mechanism of governance of economic transactions. Following Polanyi, we distinguish three governance mechanisms of economic relations and note that, to be operational, each of them requires a different social structure and social regulation.