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Why Market Failures Are Not a Problem: James Buchanan on Market Imperfections, Voluntary Cooperation, and Externalities

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  • Alain Marciano

Abstract

This article describes the intellectual trajectory James Buchanan followed from the early 1950s, when he started to work on ``spillover effects,'' to the mid-1960s, when he had completed a consistent explanation of the efficiency of market mechanisms and private arrangements in the presence of externalities. We show that, in contrast with what most economists admit, Buchanan argued that, even if externalities are a cause of ``market failures,'' this cannot be used to legitimate the intervention of the state, because individuals tend to pay for the external effects their actions generate. By adopting a historical perspective, we are able to show the remarkable consistency of Buchanan's claims about externalities, even though he developed them in a period when the views of economists on the question were changing dramatically.

Suggested Citation

  • Alain Marciano, 2013. "Why Market Failures Are Not a Problem: James Buchanan on Market Imperfections, Voluntary Cooperation, and Externalities," History of Political Economy, Duke University Press, vol. 45(2), pages 223-254, Summer.
    • Handle: RePEc:hop:hopeec:v:45:y:2013:i:2:p:223-254
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    Citations

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    Cited by:

    1. Maxime Desmarais-Tremblay, 2014. "On the Definition of Public Goods. Assessing Richard A. Musgrave's contribution," Documents de travail du Centre d'Economie de la Sorbonne 14004, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    2. Peter J. Boettke & Rosolino A. Candela, 2020. "Where Chicago meets London: James M. Buchanan, Virginia Political Economy, and cost theory," Public Choice, Springer, vol. 183(3), pages 287-302, June.
    3. Beatrice Cherrier & Jean-Baptiste Fleury, 2017. "Economists’ interest in collective decision after World War II: a history," Public Choice, Springer, vol. 172(1), pages 23-44, July.
    4. Nathalie Berta, 2016. "On the definition of externality as a missing market," Post-Print halshs-01277990, HAL.
    5. Nathalie Berta, 2016. "On the definition of externality as a missing market," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-01277990, HAL.
    6. Alain Marciano, 2019. "Buchanan and public finance: The tennessee years," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 32(1), pages 21-46, March.
    7. Béatrice CHERRIER & Jean-Baptiste FLEURY, 2014. "Whose values? The Rise, Fragmentation and Marginalization of Collective Choice in Postwar Economics, 1940-1981," Economics Working Paper from Condorcet Center for political Economy at CREM-CNRS 2014-05-ccr, Condorcet Center for political Economy.
    8. Elodie Bertrand, 2019. "Much ado about nothing? The controversy over the validity of the Coase theorem," Post-Print hal-03479468, HAL.
    9. Nathalie Berta, 2017. "On the definition of externality as a missing market," Post-Print hal-02095696, HAL.
    10. Button, Kenneth, 2020. "The Transition From Pigou’S Ideas On Road Pricing To Their Application," Journal of the History of Economic Thought, Cambridge University Press, vol. 42(3), pages 417-438, September.
    11. Nathalie Berta, 2016. "On the definition of externality as a missing market," Documents de travail du Centre d'Economie de la Sorbonne 16007, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.

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