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Market Failure or Government Failure? Robert Lee Birmingham Law - - PowerPoint PPT Presentation
Market Failure or Government Failure? Robert Lee Birmingham Law - - PowerPoint PPT Presentation
Market Failure or Government Failure? Robert Lee Birmingham Law School The work of markets Markets direct goods and services to their most desired end use Send price signals to help future transactions Advance welfare through Pareto
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Market failures
Markets may fail in delivering these
efficiencies
For our purposes the two key causes of
market failure are – Public goods (resource depletion) – Negative externality (resource degradation)
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Public goods
Public goods are
– Non-rival in consumption such that one person’s consumption does not preclude that of another and – Non-excludable in terms of benefit so it is difficult to bar out access to these goods
Public goods generate market failure because being
non-rival and non-excludable the ordinary market incentives attaching to supply and demand cannot promote allocative efficiency
And it can be very difficult to determine willingness
to pay for goods received for free
So public goods may be undervalued and
- verexploited (free riders)
– E.g. clean air; landscape
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Solutions for public goods
Governmental provision
– Economic liberalisation; underfunding
Command and control
– Licensing and policing
Market provision
– Natural monopoly problem
Cost benefit analysis to protect or produce (more)
public goods – Imperfect knowledge and valuation – Discounting
Subsidy
– CAP and market distortions
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Interventions
Will regulatory interventions be any better than the
failed market?
Tax
– landfill tax v climate change levy
Command and control (to defined standard)
– environmental permitting
Market instruments
– cap and trade under ETS
Well defined property rights
– Coventry v Lawrence
Government failure may replace market failure
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