EME 444
Global Energy Enterprise

Demand for Nonmarket Action


So now we have an issue, and we have stakeholders, and each of those stakeholders has a position on the issue. What is the likelihood of these stakeholders taking nonmarket action? That is, of participating in activities such as "lobbying, grassroots and other forms of constituent activity, research and testimony, electoral support and public advocacy?" (Baron, 2010, p. 155).

To understand the likelihood of a stakeholder participating in nonmarket activities, we use the concepts of supply and demand. Baron (2010) describes it well:

The extent of these [nonmarket] activities is a function of their costs and benefits, and the optimal amount of nonmarket action maximizes the excess of benefits over costs for the interest [stakeholder].

To assess the nonmarket actions of interests [stakeholders], the supply-and-demand framework from economics can be used. The demand side pertains to the benefits associated with nonmarket action on an issue, and the supply side pertains to the cost of taking, or supplying, nonmarket action. An increase in the benefits results in more nonmarket action, and an increase in the costs results in less nonmarket action (Baron, 2010, p. 155).

The Demand for Nonmarket Action

The demand for nonmarket action comes from the consequences of the issue outcome on the various stakeholders. "For firms, those consequences are reflected in sales, profits, and market value. Employee interests are measured in terms of jobs and wages. For consumers, the consequences are measured in terms of the price, qualities, and availability of goods and services" (Baron, 2010, p. 155).

Demand for nonmarket action can be understood in terms of three factors:

  • Per capita benefits are benefits to an individual stakeholder (a person or firm). For example, benefit of changes in tax code to an individual taxpayer. 
  • Aggregate benefits are the total, or sum, of the per capita benefits across a stakeholder group. For example, benefits to all "taxpayers" from a change in tax code. When "aggregate benefits are widely distributed, per capita benefits can be small, providing little incentive for market action" (Baron, 2010, p. 156). Per capita and aggregate benefits are usually correlated (high per capita benefits often have high aggregate benefits, and vice versa), but not always. (See below for an example of this.)
  • For some issues, "the benefits of nonmarket action can be obtained through other means, referred to as substitutes. The benefits from nonmarket action are lower when there are other means of generating them, and the closer these substitutes come to replicating the benefits, the smaller are the incentives to act. Substitutes may be available in the market environment or nonmarket environment" (Baron, 2010, p. 156). For example, voters in favor of a carbon cap-and-trade policy may instead accept a carbon tax policy. The latter policy could be seen as a substitute means of accomplishing the same (or nearly the same) benefits as the original issue (cap-and-trade). Note that cap-and-trade has its own issue. A carbon tax represents a separate issue, but can affect the strength of a stakeholder's demand for cap-and-trade. Regarding the hybrid car issue, a substitute for artificial noise could be automatic braking, which could avoid pedestrian accidents. Interestingly, back when the aforementioned study was done (2009) this was not a viable option, but as of 2019 it is a very strong substitute and would likely limit the demand for action on the issue. All else being equal, as the viability and number of potential substitutes increases, the demand for the nonmarket action decreases.  

Note that per capita and aggregate benefits can be related to the (dis)unity of the group noted in the previous page. Some members within a group may not receive any benefits, or a lot, and all points between. This may be a cause or effect of disunity, but either way should be taken into consideration. As more members receive more benefits, the per capita and aggregate benefits increase. Aggregate and per capita benefits usually operate in lock-step, but they may have different impacts on the demand for an action. For example, if all taxpayers in the U.S. were to receive a very small tax break - let's say $25/year for argument's sake - then the per capita benefits would not be very large and thus demand not likely significant. However, the aggregate benefits would be substantial, since there are over 140,000,000 taxpayers in the U.S. and thus would indicate a relatively high demand. Overall, as per capita and/or aggregate benefits increase, likelihood of nonmarket action increases.

In sum, demand for nonmarket action--the benefits motivating a stakeholder to take action--are a result of the individual (per capita) benefits, the aggregate benefits, and the presence (or lack of presence) of substitute ways to achieve the same benefits.