Market Failure in Context: Introduction

Abstract

Market failure, conceived of as the failure of the market to bring about results that are in the best interests of society as a whole, has a long lineage in the history of writings on matters economic. The goal of the present volume is to explore the contexts within which “modern” (i.e., twentieth-century) notions of market failure were developed. The idea that markets could fail to perform in ways that best promoted the larger interests of society is as old as economics itself, and the question of the appropriate scope to be given to private action and to its collective alternative is one of the most crucial issues with which economic thinkers have had to grapple. Nevertheless, our understanding of the contexts—social, political, and intellectual—in which discussions and debates about market failure have played out remains limited and imperfect. It is our hope that the present volume will go some way toward addressing this lacuna, both directly and by stimulating additional scholarship exploring this important facet of the history of economics.

Retrospectives: Tragedy of the Commons after 50 Years

“…At its core, Hardin's (1968) tragedy, captured in his sheepherder analogy, illustrates a rather standard economics problem of interdependence, which involves issues of collective goods or external effects. After early analyses by Pigou (1920) and Knight (1924), these problems had received more attention and had been more frequently discussed in the mid-to late 1950s with the works of Samuelson (1954), Bator (1958), and Coase (1960) (for an overview, see Marciano and Medema 2015). Hardin offered quick and casual references to Adam Smith and Thomas Malthus, but he did not refer to any of the modern economists who had contributed to the study of how to deal with situations involving interdependence.…”

A genealogy of the concept of merit wants

“…Some scholars have tried to link 9 Hammond (2015) downplays this normative interpretation of Samuelson's model, instead putting emphasis on Samuelson's own 'nihilistic' interpretation. 10 For a more general discussion of the narrowing perspective of economic thinking in the market failure tradition after World War II, see Marciano and Medema (2015). 11 For collective good j and agent i and quantities X, X j D X i j 8i.…”

‘Market failure’ arguments are a poor guide to policy

“…Accordingly, economists today broadly understand market failure in a simpler way: “the failure of the market to bring about results that are in the best interests of society” (Marciano & Medema, , p. 1). As the economist and libertarian theorist David Friedman has written, there are situations in markets where “individual rationality does not lead to group rationality” (Friedman, n.d.).…”