Chapter 14 Government and Market Failure Externalities n
- Slides: 14
Chapter 14: Government and Market Failure
Externalities n n Negative externalities Positive externalities
Negative externalities
Positive externality
Solution n n Taxes or subsidies regulations
Pollution n Marketable pollution permits
Coase theorem n If property rights are well defined and there are no transaction costs, private bargaining can correct for the presence of positive or negative externalities
Common property resources n Examples: n n n fisheries endangered species collective farms communes Solutions: n n establishment of property rights regulations
Public goods n n n A good that is nonrival in consumption free rider problem underproduction Solutions: subsidies or public provision
Imperfect information n Asymmetric information – one party to a contract has different information than the other party n n Adverse selection Moral hazard
Adverse selection n Occurs when the parties who are willing to accept a contract are of “lower quality” (from the perspective of the other party) than a random member of the population “Lemon’s problem” Examples: used cars, insurance issues, financial markets
Moral hazard n Occurs when one party to a contract has an incentive to alter his or her behavior to the detriment of the other party once a contract exists
Solutions to asymmetric information problems n n Mandated information requirements Mandated warranties Copayments and deductibles Incentive-compatible contracts designed to reduce the moral hazard problem
Government failure n n n Public choice theory Logrolling Rent seeking
- Role of government in correcting market failure
- Socially optimal quantity positive externality
- Failure to capture vs failure to sense ecg
- Vvi pacemaker
- Ductile vs brittle fracture
- Externalities and public goods microeconomics
- Externalities problems and solutions
- Network externality
- Externalities in environmental economics
- Deadweight loss with positive externality
- Myspace
- Segmentation targeting positioning analysis
- Market follower
- Define market failure
- Dineshbakshi economics