Market Failure, Government Failure, and the Hard Problems of Cooperation

Daniel M. Hausman
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Daniel M. Hausman: University of Wisconsin-Madison, Postal: USA

Ethics and Economics, 2008, vol. 6, issue 1, 6

Abstract: Diagnoses of market failures are used to justify government cooperation, but government regulations have their own costs. Economists debate whether market arrangements may be superior despite their imperfections. As I shall argue in this brief essay, the terms of this debate are misleading. When taken literally, the notion of a market failure is of little relevance, because perfectly competitive equilibrium, the benchmark against which markets "fail," does not obtain. Questions about the failure of government regulation are also often badly posed, because markets cannot exist without government regulation in the form of coercively protected property rights. Debate over whether government regulation should be instituted to remedy market failures should be recast as an examination of the whole range of benefits and harms particular markets cause coupled with an examination of the specific benefits and harms of government actions to address such harms.

Keywords: market failure; cooperation (search for similar items in EconPapers)
JEL-codes: A10 (search for similar items in EconPapers)
Date: 2008
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