Talk:Market failure

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  • needs examples

Contents

[edit] Compliments

Truly excellent work on this article! Good work everyone! --ShaunMacPherson 05:52, 19 Oct 2004 (UTC)

[edit] Discussion

This article gives the impression that such a thing as a "market failure" actually exists, which I, for one, hotly dispute! I added the word "purportedly" ("market failures are cases where markets --purportedly-- fail") to try to make it less biased, but that was removed.

I appreciate your concern regarding economic theory. I have added a note regarding the disputes over its existence. Your own version, however, implied that it does not exist, which was at least as biased as the previous version and does not have the backing of the bulk of traditional economists. In the future, please specifically attempt to avoid weasel terms. - Fennec 13:16, 27 Apr 2004 (UTC)
Heh, you can dispute reality all you want, but that is not likely to change anything. I can't say I'm surprised by this comment, though. Insane ultra-capitalists and "free marketeers" generally have a very fragile connection with the real world, and would rather dispute the whole science of economics than admit the fact that capitalism is not, after all, absolutely perfect and infallible. -- Mihnea Tudoreanu 14:11, 10 Oct 2004 (UTC)
Speaking of fragile connections with the real world... isn't the supposed existence of "market failures" contingent on there being perfect knowledge of what would constitute the optimal reality? We "free-marketeers" are little bit more grounded in reality than people who assume perfect knowledge.Ikilled007 09:10, 25 February 2007 (UTC)
Please, someone, give some examples of the market failure - or restore the paragraph which says than none exist. Removing this paragraph without giving some specific examples to rebut it is just plain intellectual dishonesty. -- Averros

[edit] Social concerns

11:01, 9 Jan 2005 Mihnea Tudoreanu (Market failure does not refer to social concerns - it refers to market inefficiency)

Hey, that's pretty nice Mihnea, good call.--Jerryseinfeld 13:51, 9 Jan 2005 (UTC)
Inefficiency in regard to doing what? RJII 07:18, 11 Jan 2005 (UTC)
RJII is exactly right. "Efficiency" refers to the extent to which the market (or some other institution) achieves our goals, whatever they are. That is, it refers to social concerns, the concerns of people living in society, either as individuals or in groups. The orthodox concept of "Pareto optimality" involves a very strong social concern (and value judgement) the wish to not make anyone worse off. In our current society, it typically refers to defenses of existing wealth ownership. Jim 17:02, Jan 12, 2005 (UTC)

Economic Efficiency involves both Allocative and Technical efficiency. Allocative Efficiency refers to the idea that society gets what it wants. Technical Efficiency refers to the idea that firms get these things in the cheapest, most effective way possible. Elshizzo 20:13, 16 December 2006 (UTC)

Who is "society"? The society is an abstract concept, not a specific person, and cannot get any benefit. Speaking about benefits to "society" is an antropomorphism and a category error. The less charitable interpretation of this term is that by speaking about benefits to society the speaker alludes to benefits to himself (or to the group he identifies himself with). -- Averros

The definition of market failure is fundamentally wrong the role of a succesful market is not to allocate goods and services- it is to allocate resources effectively which in turn are possibly used in the production of goods and services. The wording is equivocal and it does not explain what the 'goods and services' are being allocated to? - Joe Powell

[edit] Re: market failure is ultimately a matter of value judgements

RJII wrote: "(for example, a failure to allocate goods in way some see as socially or morally preferable)".

That depends on the definition that is used for market failure. The neo-classical definition of a market failure being a situation where a pareto improvement is possible is value judgement neutral. I.e. can the situation be made better (at least theoretically) in the view of at least one person without making the situation worse for anyone else. For example, in a monopoly, the monopolist will often set the price higher than the market clearing price in order to get more profit. This is a market failure because there is a theoretical improvement that can make at least one person better off without making anyone worse off. Basically, if there is someone who is willing to pay the market clearing price, but not the monopoly price, then that person and the monopolist would be better off if they trade at a price lower then the monopoly price but above the market price. Where does a value judgment come into that example? Jrincayc 14:29, 29 May 2005 (UTC)

The idea that the Pareto criterion is value neutral is disconcertingly widespread amongst otherwise intelligent people. The Pareto criterion is a way of defining inefficiency, and nothing else - to claim it is "value neutral" is to assert that the initial distribution of resources is ethically ideal. Rd232 16:51, 27 September 2005 (UTC)
Preferring Pareto efficiency does not say anything about the ethics of some initial distribution of resources. The only "value judgment" involved is that if an improvement can be made so that some people are better off and nobody is worse off, then it should be made. Bluey 11:44, 13 June 2006 (UTC)

[edit] Improvement drive

A related topic, Grameen Bank, has been nominated on Wikipedia:This week's improvement drive. Contribute your expertise and vote for Grameen Bank on Wikipedia:This week's improvement drive!--Fenice 06:47, 10 August 2005 (UTC)

[edit] Asymmetric Information

I was just wondering if information asymmetry is considered a market failure. I should already know this answer, but I cant remember for the life of me  :) Dupz 13:50, 20 October 2005 (UTC)

Information asymmetry is a fact of life. It exists in any transaction. Condemning it as a failure is, basically, saying that the entire market is a failure. Averros

[edit] Merit Goods, Demerit Goods, Public Goods and Externalaties

I'm particularly disapointed with the fact that this article makes no reference to merit or demerit goods, public good or even positive and negative externalities. Also ommitted are government actions to combat market failure. I am willing to discuss this with other contributors before just editting the article immediately. Zamba 22:13, 28 October 2005 (UTC)

Zamba - government never combats market failure. It creates failures of the market in the first place. Averros

[edit] External link added, then quickly deleted as ‘minor’

Yesterday I added this link ( http://www.mises.org/fullstory.aspx?control=1035 ) to the “Market failure” external links section.

30 minutes later, an editor removed the link, saying in the edit summary “removed link that seemed more focused on opinionated matters, rather than adding anything useful to the article” and marking it as a minor edit.

I am not yet restoring the link, as I don’t particularly enjoy reversion battles. However, removing a link is most certainly *not* a minor edit (“Minor edits generally mean spelling corrections, formatting, and minor rearrangement of text.” – from How to edit a page#Minor edits. The very fact that the summary took 17 words to explain should be a pretty good indication of its non-minor status.

When adding the link, I made a point of describing the article as by an Austrian and his affiliation so the point-of-view would be clear in advance for readers to know what they’re getting into.

Since the concept of “market failure” is itself so contentious, as clearly shown by the varying points of view in the main article, to my mind it is a very reasonable approach to link to further discussion, especially to an online item that is reasonably current and even has “Market Failure” in its title. (!)

Further, the main “Market failure” page section on the Austrian School contains commentary by an apparent non-Austrian (or non-laissez-faire, let’s say) that makes one wonder about the original writer’s POV. If that commentary should end up being removed, would it be restored with claims that the removing editor was opinionated?

When suggesting that the linked article focuses on opinionated matters, perhaps the opinions at issue truly lie elsewhere. – RayBirks 22:30, 5 October 2006 (UTC)

Almost anything on the topic of "market failure" can be construed as opinionated or tendentious, including perhaps the very title of the article. Removing a link to this article (written by a Ph.D. candidate) serves only to stifle the debate in pursuit of some non-existent neutral ground, in a field (economics) marked by more contention than maybe any other profession. I agree completely that removing the article constitutes a greater violation of NPOV than posting it. Ancapistan 20:27, 6 October 2006 (UTC)

I have added the NPOV tag. The Austrian view is not well represented ("efficiency" is emphasized and the role of private property is barely addressed) and is also subjected to commentary. Indeed, an Austrian or an anarcho-capitalist would suggest that an unimpeded market can never experience a failure by definition. Any attempt to introduce the concept of "failure" brings with it a value judgment about what a market—and, therefore, individuals—must offer or not offer. When coercive measures are introduced, the market is driven away from maximizing the satisfaction of consumer wants. For those interested, pages 15-18 of Hans-Hermann Hoppe's The Economics and Ethics of Private Property speak well to this. --RayBirks 23:18, 6 October 2006 (UTC)

The Austrian view should not be given undue weight. Also, you seem to be contesting the factual accuracy of the Austrian section rather than the NPOV of the entire article. If you believe that the Austrian view is misrepresented, please edit the Austrian section accordingly. But bear in mind that the Austrian school is only supported by a minority of economists. -- Nikodemos 05:45, 28 October 2006 (UTC)
Well the Austrian view wasn't even present, except for the notion that they reject "market failures". The artice I referenced to now seems to make a good summary, for further expansion of the section. Intangible 02:00, 29 October 2006 (UTC)

[edit] Social Liberalism

I've put a disputed tag to the social liberal section. This section seems to be more about politics, and not about economics. Furthermore the section equates (as fact) neo-liberalism with laissez-faire, which is balony. Maybe this section should just be removed? Intangible 02:07, 29 October 2006 (UTC)

I wholeheartedly agree. Economics as a political ideology, and economics as a theory are completely different balls of wax. I think it is in the best interest of the article to put it under a different title that reflects no political leanings with regard to the views expressed thereafter. Call it anything you wish, just don't attribute the views to a specific political group. It severely undermines the credibility of the article.--204.15.30.134 00:32, 3 March 2007 (UTC)

[edit] Climate change

I think there should be some information about the Stern Report describing the Effects of global warming as one of the biggest known market failures, but i have little economics knowledge. - Shiftchange 02:47, 3 November 2006 (UTC)

Maybe there should be such a discussion. I'd like to point out though that it's not necessarily market failure, because the costs of producing global warming may be less than then benefits of producing it.Anarcho-capitalism 03:00, 3 November 2006 (UTC)
The suggestion that (human caused) "global warming" is an example of "market failure" is to suggest that it exists at all, and if it exists, is indeed caused by humans. A mature and truly scientific view of the "consensus" shows that there is none, and that we don't necessarily know for certain that the earth is warming, or that it's caused by humans. If it is not caused by humans, it cannot possibly be caused by a "market failure"--should such things actually exist. In short, "bullpuckey." 206.124.31.24 07:35, 12 April 2007 (UTC)

[edit] The Existance of Theoretical Market Failure

Market failure is apart of economic theory. This is an indisputed fact. It's also a fact that such market failures do exist in the real world. Externalities are an obvious example. Any time there is value, either positive or negative, to a third party there is an externality. For example, if I enjoy the smell of the perfume that the girl who sits in the front row of my econ 101 class, then there is a positve externality associated with the perfume. At the market clearing level, the total marginal benefit is greater than the marginal cost. This is indisputably a market failure. I suggest this articel be completely changed with two main sections; the first being to explain the neo-classical theory of market failure, the second regarding the implications of policy which attempts to correct market failures. The existance of market failure and the possibility of pereto improvement by government intervention or any other means ar seperate issues entirely. Thanks. 69.140.4.102 14:40, 8 November 2006 (UTC)

Market clearing of perfume scents? Marginal costs and benefits to what exactly? Please elaborate on this concept as I have not encountered anything so muddled since I suffered through Keynes' horrendous General Theory. Ikilled007 09:23, 25 February 2007 (UTC)

[edit] Austrian And Public Choice Schools

Firstly, these should be broken up into 2 separate categories. Austrian School and Public Choice are not the same. Secondly, the entire section is very poorly written from technical, NPOV, and prose standpoints.

While some would dub a high degree of centralization of the wealth distribution in a small number of hands a "market failure", the laissez faire response would be that the goal of distributing wealth evenly was never the purpose of establishing markets in the first place. But critics of laissez faire would ask who it was who determined the purpose of using markets. For example, in many cases, "privatization", i.e., the replacement of government programs by ones organized following market principles, simply reflects the political influence of businesses that see potential profit gains from marketization (i.e., rent-seeking). Instead of a government program, which in theory reflects the democratically-expressed will of the people, the result is sometimes a privately owned monopoly allied with the political insiders, the kind of crony capitalism that most economists, including the laissez faire schools oppose. In turn, the laissez-faire schools would argue the presence of government involvement in that 'privatizaton' in the first place and deem its status as a market 'reform' dubious. The debate remains over how the market and the political or public sphere should be separated, if possible at all.

It needs to be reworked entirely such that it appears to be written by someone who 1. Understands and can articulate the Austrian viewpoint intelligently; 2. Does not present a bias against that view point; 3. Writes in an encyclopedic manner.

I am not going to delete the section, but I am going to pass it on to some capable persons for a rewriting, at which time I'll adjust the section accordingly. Ikilled007 09:19, 25 February 2007 (UTC)

I broke the section in two, and added explanation regarding why Austrians consider market failure impossible Averros.

Austrians are irrelevant. Why they are here I really cannot understand. They are not merely heterodox, they are a lunatic fringe. —Preceding unsigned comment added by 87.242.159.83 (talk) 17:49, 5 September 2007 (UTC)

[edit] NEED SOME EXAMPLES

there should be more examples of cases and government responses here is a messy draft anyone who wants to, can change it and put it in

[edit] Example of market failures

climate change the UK stern review stating climate change as the greatest market failure of alltime casue everyone participates in it to different degrees and all are affected by it. as total cost of putting carbon into the air is not paid.

see

www.hm-treasury.gov.uk/media/8AC/F7/Executive_Summary.pdf

or

google stern review

Anthropogenic climate change is still far from proven theory; there are alternative explanations for the climate change which are just as strong. Using controversial hypotheses to support strong statements is against any reasonable definition of scientific method Averros.

[edit] government responses

Limitation

In certain cases, such as the manufacture, trafficing, sale and consumption of heroin, governments are called upon to assiduously interrupt and stop all aspect of the economic activity; while the harvesting and sale of whale meat is only allowed in a limited way for specific societies, with the quantity, and species also limited.

Manipulation

adding to the cost of cigarettes by imposing high taxes to discourage an unwanted activity

Regulation

stopping quacks from giving desperate poor or stupid people medical advice and/or medicine for lower price

Esmehwp 03:57, 21 April 2007 (UTC)

In the States, taxes on petrol are low as compared to the EU, but both are a form of market manipulation intended to recover some of the costs associated with motor vehicle use. The difference, I think, is that the former is focused on the cost of roads, while the latter recognizes the environmental and political impact. Please do not rely on my memory for this aspect. For regulation, many branches of the financial industry are strictly controlled, often as a result of past economic disasters. These would also make good examples. FraisierB 18:53, 22 April 2007 (UTC)

[edit] NPOV

This entire article is written as though market failures exist. That in and of itself is in dispute. Market failure needs to be presented as a concept, not as a fact. The existence of market failures is the subject of much argument and needs to be presented as such. Ikilled007 17:32, 25 April 2007 (UTC)

  • Support: You've not asked for discussion, but I absolutely concur with the NPOV tag. Sadly, those who think "market failure" is a fact go on to accuse others of having the point of view. It does make the discussion of economics a real pain, doesn't it... --RayBirks 01:25, 26 April 2007 (UTC)

In my experience those who are in denial concerning the existence of market failures have a problem with the definition of market failure. If you present an example they say “that is not a market failure because you cannot present any other mechanism that could fulfil the requirement more efficiently”. The key word here is “efficiency”. However, from a pragmatic viewpoint efficiency always takes a back seat to necessity. Thus a market failure occurs when the market fails to provide something that is deemed necessary by society when other mechanisms for its provision exist, no matter how inefficient.

There is a concern about mis-labeling failures of interventionism as "market" failures. No specific examples of actual market failures exist. See also the proof (under the Austrian School chapter) that free market is optimal from the subjective points of view of economic actors - any other definion of "efficiency" is, essentially, a statement that some central planner (wannabe) does not like the outcome. -- Averros

[edit] Content

I'm really not clear what the content of this article is meant to be. The intro states that it is about the economics of market failure but then it is really not. Also there are some mistakes in my view, e.g. the prinicipal-agent problem should be listed under asymmetric information. Also the externalities section does not mention property rights problem, pollution and environment, health etc. which is quite an ommission since it is probably the most common externality. As it stands this article is a political discussion. Karina.l.k 16:26, 30 April 2007 (UTC)

I shiver when I see M.Friedman's ultra-liberal political ideas as the main source in these things. He was a great economist and had some very good contributions (role of permanent income, natural rate of unempl.), but the political stuff is controversial at best. Which means that most of the article is BS. Feel free to rewrite if you have the time and feel like it. I'll watch the page and try to help AdamSmithee 10:09, 4 May 2007 (UTC)


[edit] Market failure allegedly

I do not want to enter an edit war. So let me sum up the argumetns against putting the word 'allegedly' into the opending sentence of the article. First of all the sentence as it is now is really really bad English. Secondly market failure is a standard economic textbook concept and as such has a fairly clear definition. I don't think it would be a good idea to have an encyclopedia entry refer to the common English language (that is everyday usage) meaning of the word as the whole article discusses the economics of it (albeit in a bad way). If there are other disciplines which use the term market failure then this should of course be discussed in the article (say sociology, philosphy whichever) but there is no point to turn this into a political argument. Further I must argue against the word 'allegedly' being NPOV because it has a definite negative conotation. To end this constant editing I sum up the options I could accept: One is to make clear that this article refers to day-to-day English use of the word and remove any credibility of this article. The second suggestion would be to have the article dedicated to the economic concept (by and large) but also point out that some may view it as a political concept to argue about and as such argue against its existence (e.g. communist, anti-capitalist, marxist etc. perspectives). Finally let me point out that there is some obvious misunderstanding of the difference between a concept and the real world. The concept has a clear-cut definition and always exists at least in theory, this in turn however does not imply that the concept is necessarily observed empirically (e.g. perfect competition is heavily applied theoretically but it is difficult to find markets where it can be shown empirically). Having said that cases of market failure in the economic sense can be found relatively often (Indeed one could argue that almost any market exhibits some kind of externatlity, asymmetric info etc.). Karina.l.k 11:53, 17 May 2007 (UTC)

There are many economic textbooks which state that market failure is a myth. It is NPOV to treat market failure as a fact. For the sake of economic theorizing, we can postulate market failure as a given in order to play theoretical games, as it were, but if that's what this article is doing, than it needs to be clear. Along those lines, it would be more appropriate to have the first sentence read something like: "Market Failure describes a theoretical situation for which blah blah blah...." That is NPOV. What exists now is not. If you want me to rewrite the first sentence, I will be happy to. In the meantime, we cannot present market failure as fact. Economics is a social science, you know... Ikilled007 10:53, 26 May 2007 (UTC)
  • Nevermind, I just went ahead and rewrote the first sentence. Is it better now? Ikilled007 10:59, 26 May 2007 (UTC)
Yes I think now it is NPOV and reflects the nature of the article. Indeed I think this is a much better intro sentence than any previous ones.Karina.l.k 07:59, 27 May 2007 (UTC)

I looked it up and it's definitely not theoretical. There's some debate about just when the market has failed and whether it can fail if truly free, but that's distinct from the definition. So I made the lead sentence neutral and backed it up with a citation. If you think it's just a theory, you really should find something to support that. Otherwise, like I said in the edit comment, it would be no more neutral than claiming evolution is just a theory. ThAtSo 14:35, 29 May 2007 (UTC)

The article already has links to essays that controversially claim that market failures are impossible in a free market, so adding one doesn't change anything. Besides, if you read what it says, it doesn't say free. I don't think there's any dispute over the fact that market failures happen all the time in regulated markets. ThAtSo 18:43, 29 May 2007 (UTC)

Vision Thing, market failure is not about perceived inefficiencies but objectively demonstrable and monetarily quantifiable ones. For example, if there are people willing to sell certain goods for a price that others are willing to pay, but the two groups cannot conduct business, this is a market failure that is beyond perception. Calling it a perception is factually incorrect and not at all supported by the citation; it's also POV. Maybe it would be more productive if we talked things over here and hashed it all out before changing the article, because we shouldn't edit-war and this would give you a chance to fully express yourself. What do you say? 24.44.99.211 19:40, 30 May 2007 (UTC)

[edit] Total re-write

Okay, I noticed that this article was tagged, and discussion had stagnated, so I opted for a total re-write. This article is a bit shorter, but I think everyone should be quite pleased - I don't believe that I have removed any substantial content from any one section; my changes have fallen into a couple of general areas:

  • Giving a more precise, and inclusive tone - namely, trying to explain what the term means, from a mainstream perspective, while not sacrificing neutrality in the process.
  • Expanding a theoretical understanding of the causes
  • Removing redundant, or extraneous content - specifically, I'm allowing the Wikilinked pages to speak for themselves; a short summary of the ideas of a school, relating to market failure is really all that necessary - some of the sections were simply too long, and delved into material which was not only mostly unrelated, but also redundant to the linked articles. If someone really wants to know about what Marxists think about the capitalist economy, they can read it there; what's important for here is what they think about market failures.

I hope you like it - I also added a bunch of authoritative sources to some statements.

Awesome work! This version is much better! AdamSmithee 20:51, 31 May 2007 (UTC)
Brilliant stuff!!! Thanks for the much needed re-write!Karina.l.k 08:47, 1 June 2007 (UTC)
I like your rewrite. However, are you sure that Friedman can be classified under Public choice school? -- Vision Thing -- 13:43, 3 June 2007 (UTC)

[edit] External link

Since it appears we want to talk about the external links, here are the ones I'm proposing to remove:

  • Phillip Longman, Washington Monthly, January/February 2005, "The Best Care Anywhere" [1] Veterans' Health versus private healthcare
This article doesn't mention "market failure" once; instead, it's a long argument about how a public health care system would be a good thing, using the VHA as an example, and generally looking boo on a private system, like the current Republican proposition. First of all, if it's an example, it's a really poor one -- because it's not clear how there is a market failure going on there, at all. In fact, this whole argument over the efficiency of the US health care system is the subject of an ongoing debate in economics; with conclusions all over the map. It serves no purpose, and I don't understand why it was included in the first place.
This is a journal article, about a theory based in the overdeterminism theory of modern economics. It's inappropriate as an external link, since it is a contentious and highly theoretical position, which is not explained in the article, due to the fact that it does not have a principally wide following. It's not really "about" market failures, to boot; it's about government failure.
This is just a terrible link, all around. It's someone's personal list of things they think constitute "market failures" -- and most of it isn't even accurate. I mean, he cites the Prisoner's Dilemma as a market failure (!), something which is a best confusing, and at worst totally untrue. The whole list is basically a screed against the free market, with basically nil to back it. It's also totally unsourced.

Anyways, I didn't think anyone would have a problem with these going, but here you have it. --Haemo 08:28, 12 June 2007 (UTC)


Covering these briefly...
The first is an example of an alleged market failure. It's relevance seems obvious.
The second is good precisely because it's a contentious and highly theoretical journal article. The title states that it applies market failure theory, which makes it relevant.
The third is the weakest of the bunch. It's highly relevant but doesn't sound particularly reliable.
That's my short answer. ThAtSo 10:23, 12 June 2007 (UTC)
What? The first is not an example of an alleged market failure -- it's not clear that it's a market failure, nor is it clear that it's even talking about market failure. Any inference the reader would draw about market failures from the article would be entirely supposition on their part. The second is not "good" because of that; it doesn't "apply" market failure theory -- it argues that the application of market failure theory becomes redundant after a time. As I said, it's about government failure, not market failure. We have specific guidelines for what should be included as external links, and these all specifically fail this standard. --Haemo 01:36, 13 June 2007 (UTC)

We could argue about this some more, but I doubt we'd make much headway. Let's get a third opinion. ThAtSo 02:10, 13 June 2007 (UTC)

Well, we can at least agree what #3 should be removed, right? --Haemo 03:27, 13 June 2007 (UTC)

Sure. ThAtSo 04:12, 13 June 2007 (UTC)

I would also argue for the removal of all three links for the reasons stated above. Karina.l.k 06:54, 13 June 2007 (UTC)

[edit] Sorry - I'm a newbie editor

I've added a sentence on the first known use of the term 'market failure', and the probable origin of the concept.

I have searched JSTOR [2] and this is the earliest mention within any JSTOR journal article of the phrase 'market failure'.

The article is on JSTOR for those who have access. I have a PDF copy if anyone wants it.

Are there protocols for adding facts on the the entomology of terms, in WikiPedia? RichardHull 14:29, 23 June 2007 (UTC)

[edit] Neighborhood effects

I see that Neighborhood effects redirects here, but as I understand Milton Friedman's concept, it is somewhat different than what is presented to be a market failure by this article. Perhaps a second article about Neighborhood effects should be considered, although I suspect few people will volunteer to write it... :) --Childhood's End (talk) 19:48, 12 December 2007 (UTC)