Why Markets ‘Fail’

The following sections are included:

• Introduction

• Types of Market Failure

  • Lack of or Weak Property Rights

  • Public Goods

  • Market Demand for a Public Good

• Externalities

  • Definition of an Externality

  • Causes of Externalities

  • Classification of Externalities

• Type of Market Structure

  • Resource Allocation in a Perfectly Competitive Market

  • Resource Allocation in a Monopoly

• Policy (Government) Failure

• Solutions to Environmental Pollution Problems

  • The Property Rights or Coasian Solution

• Government Policies

  • Command-and-Control Systems

  • Market-Based Instruments (MBIs)

• Choosing the Right Policy Instrument

  • Economic Efficiency

  • Effectiveness

  • Adaptability

  • Equity

  • Political Acceptability

  • Concluding Remarks

• Summary

• Key Terms and Concepts

• Review Questions

• Exercises

• References

• Appendix 4.1 Customary Marine Tenure Systems in Papua New Guinea