market failures Flashcards
market failure
occurs when the market system does not achieve economic efficiency
does not imply a barrier to market clearing
market clearing forces do not achieve max social net benefits
market clearing
Qd = Qs
causes of market failure
- property rights not well defined
- divergence of social and private discount rates
- government failure
- market power
should you correct market failures
only if benefits > costs
MOC society
MOC private + externality
open access
everyone has the right to the property
common property
rights are defined so there is excludability to a point
collective owners, exclusions of non-owners, owners duties include maintenance
private property
individual owner, owners rights: control access socially acceptable users, owners duties include avoiding socially unacceptable uses
Navajo Indian Grazing
problem: overgrazing on Navajo Reservation
background:
- largest tribes
- loose federation
- pastoral economy
Johnson and Liebcap’s argument: property rights given to tribe instead of individuals making it a common property resource and the result was the opposite of what was intended
This was because uncertainty over land boundaries, grazing restrictions not enforced, large number of herders with small herds, and boundaries were never marked or written down
inability to exclusively control a resource
use it or lose it
use more than the efficient point
common property and externalities
common property allows some externalities to exist bu as long as they are relatively unimportant common property is fine
it is expensive to manage private property
as the externality becomes more burdensome, a switch to private property rights may be advantageous
public goods
consumption is indivisible
non rival and non excludable
efficiency is not achieved because of free rider problem and absence of exclusivity
ecosystem goods/services
the benefits people obtain from ecosystems
necessary to support and maintain life and support economic activities
many of these services lack adequate substitutes, requiring careful stewardship of the ecosystems providing them
classification of ecosystems
- provisioning (food and water)
- regulating (flood, gas, and disease control)
- cultural (spirit, recreation, and cultural beliefs)
- supporting (nutrient cycling) services
non rival consumption
vertical summation because everyone can enjoy the benefits of a public good simultaneously
