From Commodity Booms to Economic Miracles: Why Southeast Asian Industry Lagged Behind

Jean-Pascal Bassino (jean-pascal.bassino@ens-lyon.fr) and Jeffrey Williamson
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Jeffrey Williamson: Harvard University, University of Wisconsin, and University of the Philippines School of Economics

No 201507, UP School of Economics Discussion Papers from University of the Philippines School of Economics

Abstract: We propose a formal re-definition of the concept market failure based on the idea of the imperfect state. In the Neo-classical taxonomy, a decentralized regime of exchange is a market failure if its laissez faire equilibrium solution is welfare-dominated by a technically feasible alternative. If the state is perfect, that is, benevolent and its transactions cost of intervention is zero, every market failure can be remedied/corrected with a welfare gain. If the state is imperfect, that is, either non-benevolent or with non-zero transactions cost, the state intervention to correct the market failure can be welfare-reducing. Extending the logic behind Williamson’s remediableness criterion and Stiglitz’ constrained Paretoness, we introduce a new taxonomy of failures: the concept “proto-failure” now denotes any failure which laissez faire interaction cannot remedy without a welfare gain. The label “market failure” now denotes a proto-failure which the relevant state can correct with a welfare gain. A proto-failure that the relevant state cannot correct with a welfare gain we call “RC efficient.” We use the net welfare metric which explicitly accounts for transactions cost of intervention as efficiency criterion. The new taxonomy is equivalent to the old if the state is perfect, that is, all proto failures are market failures. When the state is imperfect, the set of market failures is smaller than the set of proto-failures. A proto-failure is a necessary--but not a sufficient--condition for a welfare-improving government intervention. This paper follows the Williamson counsel to “push the logic of positive transactions cost to completion.”

Keywords: Manufacturing growth; Southeast Asia; history (search for similar items in EconPapers)
JEL-codes: F14 L60 N65 O14 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2015-05
New Economics Papers: this item is included in nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published as UPSE Discussion Paper No. 2015-07, May 2015

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Working Paper: From Commodity Booms to Economic Miracles: Why Southeast Asian Industry Lagged Behind (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:phs:dpaper:201507

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