The Principle and Market Failure in Systems Competition
AbstractContrary to a frequent contention, systems competition cannot work when governments respect the Subsidiarity Principle. The principle implies that governments step in where markets fail. Reintroducing markets through the back door of systems competition will again result in market failure. Three models are presented which illustrate this wisdom. The first is concerned with congestion-prone public goods and shows that fiscal competition may be ruinous for the governments. The second considers the insurance function of redistributive taxation and shows that systems competition may suffer from adverse selection. The third studies the role of quality regulation and shows that systems competition may be a competition of laxity resulting in inefficiently low quality standards.
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Find related papers by JEL classification:
- H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
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