Talk:Market failure/Archive 1

Archive 1

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)

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

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............

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)

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)

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)

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

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)

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)

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)

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.

• Folvary, Fred E. and Klein B. Klein, The Half-Life of Policy Rationales How New Technology Affects Old Policy Issues Argues that "Applications of market-failure theory may be found to have a technological "half life," after which their validity dissolves"

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.

• Examples of Market Failues

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)

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)

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)

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)

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

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.

Rubbish. Science often starts from weakly supported or controversial theories and works to prove or disprove them by observation of the real world. Consider the, originally controversial, theory that the Earth orbits the Sun. Also. in your zeal to dismiss something just because you personally can't cope with the idea, remember that there is no such thing as absolute proof outside of abstract mathematics. Using a mathematical style to asses the probability that market failure exists is easy. 1) It is highly probable that the real, as opposed to the mathematical, world does not permit perfect mechanisms of any kind (hardly a controversial idea). 2) "The Market" is a real world mechanism. 3) Imperfect mechanisms are subject to failure by definition. 4) Hence, from 1 and 2 it is highly probable that "The market" is imperfect. 5) Therefore, from 3 and 4 it is highly probable that "The Market" is subject to failure. QED. —Preceding unsigned comment added by 86.160.124.150 (talk) 12:42, 17 October 2008 (UTC)

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)

Is "Market failure" a economics concept?

The word "market" is of course economics word, but I should ask whether the "Market failure" a economics concept?

The reason I raise here because:

• As said in the intro, "Market failure" should be there before economist used that
• Causal usage of "failure" is not equal to "inefficient". An efficient system (e.g. government) can be complete failure from thew view of public interest, while most successful ones are not really efficient.

So, should economist use another word "Inefficient market" instead of competing and blurring of existing term "Market failure", and let these two concepts separate? --Kittyhawk2 (talk) 14:30, 26 June 2009 (UTC)

Yes, "Market failure" is a term which economists use regularly. CRETOG8(t/c) 02:33, 27 August 2009 (UTC)

Mises and Mankiw

Regarding references to a Mankiw textbook, his books have been criticized, but they're popular at universities and well within the economic mainstream. So, they're exactly the kind of reference that WP:RS is looking for. If it's written for people without much economics education, that's not a major fault, rather it should hopefully be written clearly.

As for the Mises Institute, it's a non-mainstream advocacy organization. It hosts some good reference material (not writes, but hosts), and so referring to that is appropriate when it comes up. It may sometimes be appropriate to refer to MI for an Austrian perspective. An opinion article written by someone at the MI isn't a WP:RS for anything except the opinion of the writer. CRETOG8(t/c) 02:40, 27 August 2009 (UTC)

Mankiw is a tertiary source, which is not the preferred type of source. Gigs (talk) 13:13, 27 August 2009 (UTC)

And I do agree that many of the essays that MI publishes are largely just opinion pieces and should be treated as such. Gigs (talk) 13:16, 27 August 2009 (UTC)

Wikipedia treats textbooks as secondary and tertiary texts. The claim being made here is not nearly as clear as the opinion piece by a George Mason student that you tried to include in the lede.MoralMoney (talk) 16:21, 27 August 2009 (UTC)

You have me confused with someone else, I think. Gigs (talk) 17:21, 27 August 2009 (UTC)

Lede

"it may be possible for a government to improve the inefficient market outcome"

And the citation is a school text geared toward "intro to economics" type classes. A widely held opinion is still an opinion, and we should present it as such. Presenting this as if it is some fact completely neglects that there is considerable controversy over whether this statement is true or not, in fact the debate over the validity of this idea is largely what this article documents. Gigs (talk) 13:11, 27 August 2009 (UTC)

Mankiw is secondary and tertiary source. What is being taught is not Mankiw’s personal opinion. This is a principles text which presents the basic fundamentals that are accepted by mainstream economics as a school. The basic fundamentals tend to be agreed upon by a majority of economists; if you see this as an opinion then I think you are overlooking how economists come to a virtual consensus. It doesn’t matter if this is an undergraduate text. What I’d be more concerned about is the inclusion of the Austrian perspective in the lede. This is just one of many perspectives in heterodox economics so it is bordering on the fringe of mainstream economic thought. Not only this, but the Austrian school denies the very existence of what this article is about. So why is this appropriate for the lede? It is included in the criticism section. Fine. But how is the inclusion of a heterodox theory that denies the very existence of the subject even slightly appropriate here? How is an article from a student writing on a von Mises blog a better source? Surely you see problem here. I'd be a little more careful with your NPOV claims because you may be saying more about yourself.MoralMoney (talk) 16:18, 27 August 2009 (UTC)

Again, I think you have me confused with someone else. I haven't added any citations to the article, other than repairing a broken reference outside of the lede. Gigs (talk) 17:24, 27 August 2009 (UTC)

Yup, I do have you mixed up. Sorry about that. I thought the link you fixed was one of your own contributions. My defence of Mankiw still applies, though. I hope we can agree. Yes, it is an undergrad text, but it represents mainstream economic thought.MoralMoney (talk) 21:57, 27 August 2009 (UTC)

I agree with you that interventionism does dominate mainstream thought currently. But considering that, as the article notes, Austrians, montearists, marxists, and others are skeptical of the truth of the statement in question, and because the article is largely devoted to documenting this dissent, I don't think we should be presenting that POV in the lead as truth without noting the dissent. Even neoclassical economists disagree on the details. Can we do something like "Mainstream neoclassical 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."? Gigs (talk) 23:04, 27 August 2009 (UTC)

Sure. That works. Although the Keynesian side of things is more associated with government intervention than neo-classical economics. But both are mainstream and "neo-classical econ" is more and more frequently used to describe both. And either way, the conclusion is that federal government and central bank intervention is only effective in the short-run. In the long-run the classical dichotomy holds and government expenditure and changes in monetary supply only result in inflation. But where are you going to put this statement? If another editor wants to include the Austrian perspective in the lede, I'm ok with that but we sould at least stay on topic and not confuse the reader by ending things with a criticism of the topic.MoralMoney (talk) 00:52, 28 August 2009 (UTC)

I was suggesting that that statement replace the current statement at the end of the lede regarding government intervention. Add a full stop after the Pareto comment and then the above sentence. Sound good? Gigs (talk) 01:03, 28 August 2009 (UTC)

Sounds good. I added it with the addition of "Keynesian". But it seems like there should be a transition, such as, "'So', mainstream neoclissical eocnomics...." or "'Because of this' mainstream neoclassical economics..." Feel free to edit it. It's your sentance.MoralMoney (talk) 05:17, 28 August 2009 (UTC)

Looks good to me, thanks. Gigs (talk) 13:05, 28 August 2009 (UTC)

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)

Agreed. Pareto efficiency is a welfare maximizing concept that is easily expressed mathematically and is clearly objective.MoralMoney (talk) 04:58, 14 August 2010 (UTC)

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)

I've noticed that for over a year now 'Austrians' keep trying to barge into this article. It's extremely unnerving and is obviously motivated by politics. The Austrian argument is that markets can be perfect. Market failure is not part of their vocabulary. They don't have much to offer other than criticism and even that is vacuous. Austrians find the concept of market failure very disagreeable so they keep coming back here. It's really tantamount to vandalism and needs to stop if Austrians hope to maintain any sense of dignity.MoralMoney (talk) 04:52, 14 August 2010 (UTC)

p.s. If you are Austrian and/or Libertarian, trolling wikipedia and adding a Ayn Rand or Von Mises link to anything that has to do with economics is politically motivated vandalism and degrading to people who are serious students of the field you so admire.MoralMoney (talk) 05:02, 14 August 2010 (UTC)

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

Well, yes, Averros, that is the implication but it does not imply that a better alternative exists. In reality, markets fail to achieve the perfect standard of Pareto efficiency. This is a concept based in calculus and asymptotic theory. If one of the assumptions of perfect competition does not hold then the existence proof of a Walrasian equilibrium breaks down. What this means is that we don’t live in a perfect world which seems a more reasonable conclusion than the one that markets are perfect. Whether or not there are better alternatives is another debate.MoralMoney (talk) 01:15, 29 August 2010 (UTC)

Monopolies *are* pareto efficient

Hear me out. A pareto efficient transaction, one person is better off and the other is not worse off. The only way this can happen is if:

1. One person is tricked / lied to about the transaction
2. One person is forced into the transaction against their will

This article says "In a monopoly, the market equilibrium will no longer be Pareto optimal." Unless that monopoly is the government, a gangster group, or fraudulent, every transaction with that monopoly will be a pareto improvement. Same is true for any business - monopoly or not. No person is going to willingly enter into a transaction that they do not think is a pareto improvement.

So why does it make sense to say that a monopoly removes pareto optimality from the market?

Fresheneesz (talk) 07:23, 22 September 2010 (UTC)

The concept of Pareto efficiency is rooted in general equilibrium theory. I’m not exactly sure what you are saying with your 2 conditions for a Pareto improving transaction. It sounds like your issue is with someone carrying out a transaction when they are not made worse off yet they aren’t made better off either. This isn’t the description of every Pareto-improving transaction. This is the definition of the last transaction. It is rooted in calculus and is similar to the concept of a limit. Think about getting infinitely close to a limit, but never quite actually getting there. There are Pareto improving transactions that make both parties better off leading up to the very last transaction in which no one is made worse off. Monopolies are inefficient because they are non-competitive and perfect competition is required to establish a Pareto efficient equilibrium. It seems the issue here is more with the concept of perfectly competitive markets that most people quickly identify as unrealistic. The concept of Pareto efficiency is part of this theory and is itself pretty unrealistic. This is why market failure is more the norm than the exception. Ultimately, I think you’re being way too realistic for economic theory. It’s just too bad that most people don’t realize that because many people think that competitive markets are the dominant form of transacting. They are not. I think you may want to look at "economies of scale" and "decreasing average costs" if you want to make the argument that monopolies would be efficient. I don’t think you could say that they are Pareto efficient because price does not equal marginal cost which is required for Pareto efficiency, but you may be able to argue that monopolies can produce at the lowest average cost if they are an economy of scale. Moralmoney (talk) 02:01, 10 October 2010 (UTC)

I'm not sure what you base your claim on when you say that market failure can exist without a possible Pareto improvement. Don't get me wrong. I think market failure is an especially useful concept if we want to describe reality, as market failure does abound, but in each case the reason it is called a failure is because it fails to reach a Pareto optimum. The whole point of a market mechanism, as is proved by Walras' law, is that perfectly competitive markets are Pareto efficient. They fail by being not Pareto efficient, meaning that one person can be made better off without making someone worse off. Do have a source for this claim? It is highly unusual within the academic literature and this is the first time I've ever heard it being made.MoralMoney (talk) 02:28, 15 May 2011 (UTC)

I copied the above from my talk page because I figure it's best to continue it here rather than there. And I seem too brain-dead to continue it tonight, since this is one of those things which should be basic on the face of it, but gets weird fast when you think too hard about it. Your version says, "there exists another conceivable outcome where a market participant may be made better-off without making someone else worse-off" I think the keyword there may be conceiveable. So, a monopolist charging a single monopoly price could conceivably be perfectly price discriminating, which would be a Pareto improvement. Thought about that way, or allowing side payments, then maybe your notion is correct, so I guess I need to stew on it. (I think you might need to be more careful in your discussion, though. While it's true that, assuming various niceties, Walrasian equilibrium is Pareto efficient, there's generally lots of other non-equilibrium situations which are also Pareto efficient, such as the one in which Donald Trump owns everything.) CRETOG8(t/c) 05:07, 15 May 2011 (UTC)

LoL Yeah it might be one of those things that gets more complicated the more you think about it, but isn't that what economics is all about? Making things more complicated than they need to be? I didn't notice the wording of conceivable and I didn't add that term. I guess I interpreted it as meaning possible. With the discussion of Pareto optimality I was thinking it is important to point out the role of disequilibrium as market failure. Externalities imply disequilibrium of social costs and benefits, as do information asymmetries. I think imperfect competition implies disequilibrium but I can't think of exactly how it would. It would, wouldn't it?MoralMoney (talk) 04:49, 16 May 2011 (UTC)

global warming quotation

... Climate change is, in the words of the Stern Review on the Economics of Climate Change, “the greatest example of market failure we have ever seen.” ...

from http://www.thenation.com/article/164497/capitalism-vs-climate?page=0,4 by Naomi Klein.

99.190.86.244 (talk) 10:15, 28 November 2011 (UTC)

Discussion

The introduction of this article seems inconsitent to me on the question whether a market failure is a non pareto efficient situation. "But either way, if a market failure exists the outcome is not pareto efficient." If that is true, than moving to another situation must lead to non-strict gains for every particpant. This however contradicts: "(even if some participants lose under the new arrangement)". I'm not an expert, can anyone explain or correct this text? (Jesse Kayser 250110) —Preceding unsigned comment added by 195.193.90.30 (talk) 11:19, 25 January 2010 (UTC)

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.

Please sign and date your statements whoever you are (it is Winter 2008 and reality is biting back at perpetrators of total denial). This discussion is a poignant proof of the failure of some of the guidelines Wikipedia is suffering from. The guidelines result from the unfounded belief that it is possible to write a value-free article or. Janosabel (talk) 22:21, 27 December 2008 (UTC)

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)

So, "We, the Free-marketeers", are you still saying that markets do not fail? What was so great about the Sub-prime lending boom that pricked the bubble of the boom phase of the economic cycle?

With due respects, reading your CV, makes me ask what is it in higher education that so closes the mind to independent thought?.

With respects, still, what about cleaning up thinking structure? Janosabel (talk) 22:21, 27 December 2008 (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

Read the papers or look out of the box, maybe? Janosabel (talk) 22:21, 27 December 2008 (UTC)

Does not present an unbiased account of market failures. — Preceding unsigned comment added by 173.48.111.62 (talk) 21:52, 20 December 2011 (UTC)

The introduction to this article discusses 'government failure' to a large extend even though government failure has nothing to do with the concept of market failure. Government failure is something completely different and may or may not occur if and when public entities take part in the economy for various reasons, sometimes including market failure. But the concept of government failure has as much significance in the introduction to market failure as an explanation of communism has in the introduction to the article on capitalism.

The last sentence is even more strange. It talks about 'scientists' denying the existence of market failure. For the sake of consitency, creationist criticism of evolution should be included in the introduction to the article of evolution. As should all articles on Wikipedia include a sentence that there must be some whacko 'scientist' out there denying it's very existence. The article on the earth must mention flat earth theorists criticism, ...

Kaldor-Hicks

Perhaps Kaldor–Hicks_efficiency#Use_in_policy-making might be included in this article as a response to market failures. --Ancheta Wis   (talk | contribs) 17:12, 15 June 2015 (UTC)

Dr. Gillingham's comment on this article

Dr. Gillingham has reviewed this Wikipedia page, and provided us with the following comments to improve its quality:

This Wikipedia article has a great deal of information, but has quite a few awkward sentences and a handful of inaccuracies.

"An issue for this analysis" in the first category sounds out of place. It would read better just remove these words and start with "Whether a situation..."

A natural monopoly may or may not be an extreme case and the wording "failure of competition as a restraint on producers" is confusing. Better to reword to cut out that sentence and just say "A natural monopoly is an unusual case where a firm has its per-unit cost decreasing with output..."

The discussion of public goods is misleading. Public goods are both non-rival and non-excludable, while the write-up makes it sound like non-excludable is the only thing required of a public good.

There appears to be a grammatical issue in the first sentence of the "Externalities" section.

There is no discussion of why "Bounded rationality" falls in the market failures article or why it falls under the broader heading of "The nature of the exchange". There are good reasons, although some economists put the reasons into another category called "behavioral failures" and sometimes call them "internalities" (for consumers are imposing an external cost on themselves, often their "future selves").

Under "Interpretations and policy examples," the first sentence says "The above causes," but some of the above sections are not causes. For example, the Coase Theorem is not a cause of a market failure, but rather points out when one would expect the market to function properly even when there are externalities.

The wording says that the above "specifically considers market failures absent considerations of the "public interest", or equity, citing definitional concerns." This is a strange way of saying it and actually is incorrect, since economic efficiency can be and often is in the public interest, depending on how you define "public interest" (there is no single definition in economics of this). Really it's simply that market failures focus on the notion of Pareto efficiency, which specifically does not consider equity, which is a separate consideration. That would be a much better way to phrase it.

Finally, building codes and endangered species work, but are not the most obvious choices as the standard examples of government policies to deal with market failures. How about something simple like anti-trust policies to address market power?

We hope Wikipedians on this talk page can take advantage of these comments and improve the quality of the article accordingly.

We believe Dr. Gillingham has expertise on the topic of this article, since he has published relevant scholarly research:

• Reference : Gillingham, Kenneth & Palmer, Karen, 2013. "Bridging the Energy Efficiency Gap: Policy Insights from Economic Theory and Empirical Evidence," Discussion Papers dp-13-02-rev, Resources For the Future.

ExpertIdeasBot (talk) 14:26, 7 July 2016 (UTC)

 Done except for bounded rationality, --Ancheta Wis   (talk | contribs) 03:24, 4 December 2017 (UTC)