Market failure 1.Public goods 2.Externalities 3.Monopoly 4.Information asymmetry 5.Agent misdirection –Agents act on behalf of principals. client – attorney,

Slides:

Advertisements

Similar presentations

When Should Government Intervene?:. Definitions n Politics is the authoritative allocation of values in society n Free market: the distribution of goods.

Advertisements

Market Failure And Government Policy Market Failure And Government Policy A’lam Asadov

Infrastructure and development planning Sectoral specialization of government agencies affects process of identifying development projects (planning system)

Public Policy: Objectives and Principles Roger Kerr.

Cross-Border Infrastructure: A Toolkit Do We Need Regulation? Session on Regulation & Accountability Max Bradford Castalia The views expressed here are.

“Economics 101” -Is Government Intervention necessary in Markets? Training Session 5 Mar 2014.

3.1. Problems of Market Failures (1)  In reality, no market such a perfectly competitive market. Market tends to be imperfect  Hence, Pareto Efficiency.

Chapter 2 (1.1): How the market works? What is the market? –Voluntary exchanges –Invisible hand –Self-correcting through price mechanism Assumptions to.

Chapter 1 An Overview of Managerial Finance © 2005 Thomson/South-Western.

1 Circular Flow. 2 Technical efficiency: maximum value of output from a resource base Economic efficiency: when one person cannot be made better off without.

Business, Ethics and Profit: Economic Approaches Marc Le Menestrel

The Basics of Government Government - Libertyville HS.

Economic Functions of Government

A.S 3.3 Describe and illustrate resource allocation via the public sector to compensate market failure.

MARKETS AND MARKET FAILURE IN HEALTH SERVICES Health Economic Course Series

American Free Enterprise

Public Economics Introduction to Public Economics John Dobra, Ph.D. University of Nevada.

Chapter 15 Government’s Role in Economic Efficiency ECONOMICS: Principles and Applications, 4e HALL & LIEBERMAN, © 2008 Thomson South-Western.

MARKET GOVERNMENT GOVERNMENT FAILURE INTERVENTION FAILURE EXTERNALITY PUBLIC ENTERPRISE ADMINISTRATIVE -PUBLIC GOODS-NATIONALIZATION COST MARKET -PRIVATIZATION.

American Free Enterprise. The Benefits of Free Enterprise.

Balance between markets and intervention. Learning outcomes – Discuss the positivenegative outcomes of market- orientated policies, including a more allocation.

1 of 15 Principles of Microeconomics: Econ102.  Provide the Rules  Contract Law  Tort Law  Corporation Law  Private Property Rights  Promote or.

Market Failure. Market failure has become an increasingly important topic for students.There is a clear economic case for government intervention in markets.

CHAPTER 7. SECTION 1: Use your guided reading OPENER:  Please get out homework/classwork from yesterday and answer the following:  Does an oligopoly.

The Role of Government in a Market Economy. 1. Provide a legal system Make and enforce laws and to protect private property rights. Make and enforce laws.

Economic Functions of Government SSEF5 The student will describe the roles of government in a market economy. a. Explain why government provides public.

Review for the final Spring Iron law of public policy “For some businesses, profits increase when government acts; for others, profits falls…[E]very.

Government’s Role and Government Failure

A. Provide a Legal System to make and enforce laws and to protect private property rights. B. Provide Public Goods that individuals or private businesses.

Chapter 2 Section 1 Economic Systems. 2 I. Describe the characteristics of the traditional economy. A. Economic System – An organized way of providing.

How Should the United States Government Carry Out Its Economic Role?

Chapter 15: Externalities, Public Goods and Social Choice

Market Failure. Imperfect competition Restrict output in order to push up prices and maximize profits (i.e. monopoly & other imperfect markets) Restrict.

Economic Functions – Identify the functions and relationships among various institutions (e.g. business firms, banks, government agencies, labor.

Chapter 5: The Public Sector. Economic and technical efficiency Technical efficiency – no unemployed or underemployed resources (i.e., operating on PPC).

Economics Efficiency/inefficiency 1.  Recall, one role for the government:  Improve efficiency  When markets cannot cope  Other ones: rules, distribution.

1 CH2_Part II. 2 Externalities as a Source of Market Failure Exclusivity is one of the chief characteristics of an efficient property rights structure.

Market Failures. 1) Inadequate Competition Inefficient resource allocation Higher prices and reduced output Economic and political power.

Pure competition is a theoretical market structure that has a very large numbers of sellers, identical products, and freedom to enter into, conduct, and.

TOPIC 5 MARKET STRUCTURE. PURE COMPETITION Pure competition is a theoretical market structure that has a very large numbers of sellers, identical products,

The Economics of Politics “Pork Barrel Spending”  A public expenditure that is larger than the total benefit it creates, but that is favored by a legislator.

Characteristics of Free Enterprise Capitalism

Chapter 10: The Texas Bureaucracy and Policy Implementation.

MARKET GOVERNMENT GOVERNMENT FAILURE INTERVENTION FAILURE EXTERNALITY -PUBLIC GOODS MARKET POWER INEQUITIES DYNAMIC MKT. FAIL. INDIVISIBILITY INFORMATION.

Market and Government Failures BUSINESS, GOVERNMENT AND SOCIETY SPRING 2000.

The Individual, The Government, and Mixed Markets Limited Government.

The Individual, The Government, and Mixed Markets Limited Government.

Characteristics of Free Enterprise Capitalism

Market Failure and Government Intervention

Public sector perspective

Market Failure.

Re-cap test Define the following terms, using examples to aid your answer External Cost/Benefit (2) Private Cost/Benefit (2) Social Cost/Benefit (2) How.

Public Choice Mechanisms: Conflicts in Yellowstone

3. KEGAGALAN PASAR DAN INTERVENSI PEMERINTAH

What is government failure? Unit content

Role of Government* Organic View Mechanistic View Market Failures

Pure Competition Pure competition is a theoretical market structure that has a very large numbers of sellers, identical products, and freedom to enter.

Pricing Strategy.

Chapter 16 Government Regulation of Business

Market Failures and Government Policy

Chapter 4 Markets in Action

What are the roles of government in our free enterprise economy?

Government Intervention

The Role of Government Chapter 7 Section 3.

8 Government, the Firm and the Market.

Acquire knowledge of the impact of government on business activities to make informed economic decisions 5.04.

Market Structures.

Role of the state.

ECONOMIC SYSTEMS & DECISION MAKING (PART THREE)

Modern Liberalism In part because of the continued democratization of the state, the experience of the Great Depression, and WWII, Liberalism came to.

Presentation transcript:

Market failure 1.Public goods 2.Externalities 3.Monopoly 4.Information asymmetry 5.Agent misdirection –Agents act on behalf of principals. client – attorney, shareholder - manager, citizen – bureaucrat. 6.Social goals 7.Inequality 8.Economic instability

A few concepts Excludability and subtractability Free riding Transaction cost Principal agent relationship Moral Hazard “Obnoxious” markets Merit goods Welfare state Boom and bust cycles Keynesian economics

Correcting market failure Hierarchies, bureaucracies and other consciously directed institutions have evolved to coordinate people when the market does not. Public decision making replaces the market through –Subsidies such as tax breaks and loan guarantees –Regulations

The state Are organizations that embody legal order within geographic territories. Defining characteristic: sovereign control of territory. The American state is not unitary. Federal, state, and municipal

Roles taken by the state to correct market failures Rule-maker Umpire Buyer Producer Promoter Guarantor Broker Regulator Economic manager

Can the state make things worse? “Market failures are pervasive; it is only under exceptional circumstances that markets are efficient. The issue for the appropriate role of government is to identify the large market failures where there is scope for beneficial government intervention.” (Stiglitz, 1989:38).

How states fail ProblemsSolutions Type 1: Errors of commission: do things that government should not do Too many regulations; excess taxes, inefficient government enterprises and programs Less government activity Type 2: Errors of omission: do not do things government should do Lack of public goods, such as a stable legal environment, sound infrastructure, or environmental protection More government activity

Why states fail Rent-seeking as result of… –Special interest group –Inadequate feedback –Office seeking –Voting –Unintended consequences

The NGO alternative

A tempered view of the state Most of the time the state does not make things worse –Type 1 error is not that rampant –The state is subject to the laws of competition –Just as good intentions go awry, the obviously “bad” things about rent seeking can have positive (though not intended) consequences.