Market Failure
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A Market Failure is a system failure of an economic market.
- See: Free Market, Economic Efficiency, Pareto Efficiency, Time-Inconsistent Preferences, Information Asymmetry, Market Structure, Principal–Agent Problem, Ponzi Scheme.
References
2014
- (Wikipedia, 2014) ⇒ http://en.wikipedia.org/wiki/market_failure Retrieved:2014-5-29.
- In economics, market failure is when the allocation of goods and services by a free market is not efficient. That is, there exists another conceivable outcome where a market participant may be made better-off without making someone else worse-off. (The outcome is not Pareto optimal.) Market failures can be viewed as scenarios where individuals' pursuit of pure self-interest leads to results that are not efficient – that can be improved upon from the societal point-of-view. [1] [2] The first known use of the term by economists was in 1958,[3] but the concept has been traced back to the Victorian philosopher Henry Sidgwick.[4] Market failures are often associated with time-inconsistent preferences, [5] information asymmetries, [6] non-competitive markets, principal–agent problems, externalities,[7] or public goods. [8] The existence of a market failure is often the reason for government intervention in a particular market. [9] Economists, especially microeconomists, are often concerned with the causes of market failure and possible means of correction. Such analysis plays an important role in many types of public policy decisions and studies. However, some types of government policy interventions, such as taxes, subsidies, bailouts, wage and price controls, and regulations, including attempts to correct market failure, may also lead to an inefficient allocation of resources, sometimes called government failure. Thus, there is sometimes a choice between imperfect outcomes, i.e. imperfect market outcomes with or without government interventions. But either way, if a market failure exists the outcome is not Pareto efficient. Mainstream neoclassical and Keynesian economists believe that it may be possible for a government to improve the inefficient market outcome, while several heterodox schools of thought disagree with this.
- ↑ John O. Ledyard (2008). “market failure," The New Palgrave Dictionary of Economics, 2nd Ed. Abstract.
- ↑ Paul Krugman and Robin Wells (2006). Economics, New York, Worth Publishers.
- ↑ Francis M. Bator (1958). “The Anatomy of Market Failure," Quarterly Journal of Economics, 72(3) pp. 351–379 (press +).
- ↑ Steven G. Medema (2007). “The Hesitant Hand: Mill, Sidgwick, and the Evolution of the Theory of Market Failure," History of Political Economy, 39(3), p p. 331-358. 2004 Online Working Paper.
- ↑ •Ignacio Palacios-Huerta (2003) "Time-inconsistent preferences in Adam Smith and David Hume," History of Political Economy, 35(2), pp241-268 [1]
- ↑ • Charles Wilson (2008). “adverse selection," The New Palgrave Dictionary of Economics 2nd Edition. Abstract.
• Joseph E. Stiglitz (1998). “The Private Uses of Public Interests: Incentives and Institutions," Journal of Economic Perspectives, 12(2), pp. 3-22. - ↑ J.J. Laffont (2008). “externalities," The New Palgrave Dictionary of Economics, 2nd Ed. Abstract.
- ↑ Joseph E. Stiglitz (1989). “Markets, Market Failures, and Development," American Economic Review, 79(2), pp. 197-203.
- ↑ Kenneth J. Arrow (1969). “The Organization of Economic Activity: Issues Pertinent to the Choice of Market versus Non-market Allocations," in Analysis and Evaluation of Public Expenditures: The PPP System, Washington, D.C., Joint Economic Committee of Congress. PDF reprint as pp. 1-16 (press +).