Circular Business Models and Ecosystems: Governance by Aligning Incentives

Abstract

This conceptual article examines the shift of circular business models from policy-driven sustainability initiatives to commercially viable strategies in fast-moving product categories, with particular attention to repair, refurbishment, remanufacturing, and end-of-life recovery. Drawing on a structured narrative review and theoretical synthesis, it argues that circular models seldom scale within a single firm because slowing and closing resource loops require ecosystems that integrate product design, reverse logistics, and secondary markets. The paper develops an analytical framework that combines ecosystem strategy, complex adaptive systems, and common agency theory to explain how distributed complementarities, feedback dynamics, and multi-principal incentives jointly shape ecosystem trajectories. Reinforcing and balancing loops can accelerate, stabilise, or lock ecosystems into low-value routines, while incomplete contracts and divergent metrics may fragment effort and produce measurement traps. To address these coordination externalities, the framework introduces the super-principal as a meta-governance role that aligns principals through shared performance indicators, pooled funding rules, and investments in enabling infrastructures such as traceability. The framework offers implications for circular economy policy and ecosystem strategy aimed at sustaining higher-value circular loops.