Market Failure and Public Policy

Paper Summary:

This paper discusses the phenomenon of market failure and what happens when a market fails. The paper specifically focuses on the role of the government and how it is expected to intervene in a manner that is targeted towards mitigating the effects of market failure. The paper also discusses effective government intervention and the industries it has the most success with.

Table of Contents:
Market Failure and Public Policy
The Role of Government
Effective Government Intervention

From the Paper:

"Grand also mentions increasing returns to scale (Grand, 1991, p. 427), which entails that the average production costs fall with the increase of the production scale. This could lead to market monopolization by large firms that receive the greatest competitive advantage as a result. Grand mentions the transportation industry as a result."
"The imperfect information issue in market failure implies that there exists some miscommunication between the customer and producer. Producers, such as medical doctors and pharmacists, for example, are in an advantageous position regarding knowledge about their patients' health, and can therefore exploit this knowledge to their own advantage. Doctors have an interest in providing as many services as possible, as their income level depends upon this. The market is thus oversupplied and concomitantly inefficient."

Sample of Sources Used:

• Grand, Julianle (1991, Oct). The Theory of Government Failure. British Journal of Political Science 21 (4), pp. 423-442. Retrieved from JStor. http://links.jstor.org/sici?sici=0007-1234%28199110%2921%3A4%3C423%3ATTOGF%3E2.0.CO%3B2-Y
• Mrozek, Janusz (1999, Autumn). Market Failures and Efficiency in the Principles Course. The Journal of Economic Education 30 (4), pp. 411-419. Retrieved from JStor. http://links.jstor.org/sici?sici=0022-0485%28199923%2930%3A4%3C411%3AMFAEIT%3E2.0.CO%3B2-1
• Zerbe, Richard O & McCurdy, Howard E. (1999, Autumn). The Failure of Market Failure. Journal of Policy Analysis and Management 18 (4) pp. 558-578. Retrieved from JStor. http://links.jstor.org/sici?sici=0276-8739%28199923%2918%3A4%3C558%3ATFOMF%3E2.0.CO%3B2-2

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