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Cash on the table: Why traditional theories of market failure fail

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  • Frank, Robert H.

Abstract

Many modern progressives attribute the market's failings to conspiracies by powerful corporate actors to exploit workers and consumers. In this paper I defend the claim that many of the same failures are instead often rooted in competition among individuals for relative advantage. In the familiar stadium metaphor, all stand to get a better view, only to discover that no one sees any better than if all had remained comfortably seated. Analogous discrepancies between individual and collective incentives help explain the presence of overtime laws, workplace safety regulations, and many other institutional features of the modern welfare state. These features would be useful even if all consumers were perfectly informed and rational and markets took the perfectly competitive ideal form described in textbooks.

Suggested Citation

  • Frank, Robert H., 2016. "Cash on the table: Why traditional theories of market failure fail," Journal of Economic Behavior & Organization, Elsevier, vol. 126(PB), pages 130-136.
    • Handle: RePEc:eee:jeborg:v:126:y:2016:i:pb:p:130-136
    DOI: 10.1016/j.jebo.2015.10.015
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    References listed on IDEAS

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    1. Samuel Bowles & Yongjin Park, 2005. "Emulation, Inequality, and Work Hours: Was Thorsten Veblen Right?," Economic Journal, Royal Economic Society, vol. 115(507), pages 397-412, November.
    2. Alan D. Viard & Robert Carroll, 2012. "Progressive Consumption Taxation: The X Tax Revisited," Books, American Enterprise Institute, number 10533, September.
    3. Frank, Robert H. & Levine, Adam Seth & Dijk, Oege, 2014. "Expenditure Cascades," Review of Behavioral Economics, now publishers, vol. 1(1-2), pages 55-73, January.
    4. repec:aei:rpbook:33699 is not listed on IDEAS
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    More about this item

    Keywords

    Consumption externalities; Consumption taxation; Context; Market failure; Relative income; Safety regulation;
    All these keywords.

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • J28 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Safety; Job Satisfaction; Related Public Policy

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