Valuation and Price Formation on Markets

Third Conference on Economic Sociology and Political Economy
June 14 to 17, 2009 | Villa Vigoni

Topic and Goal of the Conference

How products and services to be exchanged on markets are valued and priced is a core question in economics and current research in economic sociology. While standard economics presupposes that actors enter market relations with clear preference orders, and limits its interest to processes of price formation on markets, economic sociology has focused on the social contexts of demand for products and investigated the social and cultural preconditions of the attachment of value to products and the social construction of prices.

The assignment of value to products is an essential precondition for the operation of markets. Only if potential purchasers of goods and services “value” the products offered does demand arise. For this to occur, several preconditions must be met: Firstly, possible uses of a product must be understood by actors in the field. As shown especially by innovation studies, the cognitive construction of a product is by no means given, but is established in the market field. Secondly, the products or services offered on markets must be legitimate objects of exchange in the social context within which the market shall operate. Market offers can, on the one hand, be valued as morally offensive, leading to the prevention of market exchange or the emergence of illegal markets or alternative models of exchange. On the other hand, the moral appropriateness of a product can contribute to its value, as can be seen in fair-trade markets. Pricing, however, can also take place for “objects” that never become a commodity, as in the case of damage compensation and the trading of carbon emissions rights.

While these issues point to the need for cognitive understanding and normative framing of products, some of the most intriguing problems regarding valuation emerge from the difficulties in distinguishing between different products within one product category. This is relatively easy with regard to products that can be distinguished according to measurable physical or chemical characteristics. For most products, however, quality differences cannot be objectively established but are more directly socially constructed. This becomes especially visible for products where value reflects aesthetic judgments. The difficulties in accounting for the enormous price differences within the wine market or the market for contemporary art illustrate this point. Equally puzzling problems emerge in markets with asymmetrically distributed information like markets for professional services and on financial markets, where rational investment decisions depend on the transformation of uncertainty into calculable risks. The valuation and pricing of goods cannot be understood solely as resulting from the aggregation of individual tastes but must be analyzed from the embeddedness of market exchange in social networks, institutions and cultural frames. It is through these social macrostructures that the uncertainty in value attribution is reduced and orientation of actors in market exchange becomes possible. The subjective value assessments of products and services are, upon closer scrutiny, socially interdependent: subjective valuations depend on the assessments by other market actors and jointly agreed-upon evaluation criteria.

Understanding the value of goods is an essential precondition for the development of market exchange. It is one of the most important coordination problems on markets. Going beyond the micro-sociology of market interaction, the creation of demand through the valuing and de-valuing of products is also one of the main preconditions for macro-economic growth and economic innovation. The resolution of valuation problems becomes increasingly challenging (and precarious) the more the demand for goods or services shifts to their symbolic dimensions. Goods are valued for their imaginative characteristics; these “totemistic qualities” of goods, however, must be continuously reproduced in the market field by endowing products with meanings. Furthermore, the signaling of social status through products considered valuable is an important manifestation of social inequality. What are the social mechanisms by which consumers become motivated to purchase products for which there is no functional need? Dynamic change in the economy has an important basis in developing new perspectives on “what is valuable.” This holds true for financial markets as much as for consumer markets. By focusing on the problem of valuation and pricing, the conference sheds light on the demand side of markets which has hitherto not gained sufficient recognition in economic sociology, given its significance in contemporary developed economies.

The conference “Valuation and Price Formation on Markets” brings together leading scholars working in the field to present current research and address unresolved issues regarding the understanding of valuation and price formation on markets. Given the interdisciplinarity of the topic, conference participants will not only be economic sociologists, but economists, anthropologists, organization scholars, and historians as well. While papers shall be based on empirical research findings, they will feature a strong emphasis on the theoretical questions at stake. By including research on a wide variety of cases that deal with value and price in relation to markets, the conference aims at contributing to a richer understanding of processes of valuation and pricing. Contributions offering historical or comparative perspectives will be of special interest.

Some of the issues and questions to be addressed will be:

> The role of morality and cognition in valuation
> Processes of commensuration
> How do markets differ with regard to different principles of valuation?
> What is the relationship between value and prices?
> How does the valuation of products change?
> The relationship between standards of valuation and market competition
> How are values in different markets interrelated?
> What role do intermediaries and experts play in the creation of value?