Non-Market Institutions in Economic Development: The Role of the Third Sector


  • Vladislav Valentinov

    1. is a researcher at the Leibniz Institute of Agricultural Development in Central and Eastern Europe (Theodor-Lieser Str. 2, 06120 Halle, Germany; email: His research interests include the institutional economics of transition and the role of third sector organizations in rural development.
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In an article published in this journal in 2005, Dorward et al. argued that non-market institutions are particularly effective in addressing market failures in the high-transaction cost institutional environment which is often characteristic of low-income countries. This comment develops additional theoretical underpinnings of this argument by exploring differences in the capacity for addressing market failure of for-profit firms, on the one hand, and third sector organizations representing a major type of non-market institutions, on the other. It is argued that while for-profit firms address market failures by facilitating market exchange, third sector organizations do so by replacing exchange with self-sufficiency. This recourse to self-sufficiency is reflected in the important role of third sector organizations in economic development in low-income countries.