What Does It Take for a Market to Function?

Jeff Davidson and Alfons Weersink

Review of Agricultural Economics, 1998, vol. 20, issue 2, 558-572

Abstract: Markets are intricate webs of institutions and social arrangements that have evolved so that transactions can take place at minimum cost. Markets fail to evolve when the uncertainty that surrounds the transaction causes costs to outweigh the benefits of the exchange. If market failure caused by a missing market is to be corrected, the goal of the new market must be to minimize the transaction costs of exchange. The literature offers few suggestions for the conditions necessary for a market to function. The objective of this paper is to specify these necessary conditions by defining what a market really is, identifying characteristics of properly functioning markets, and describing design lessons learned from recent attempts at creating markets in alternative contexts. The paper concludes with a synthesized set of criteria necessary for a market to function.

Date: 1998
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