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The failure of market failure

  • Richard O. Zerbe

    (University of Washington, Seattle)

  • Howard E. McCurdy

    (American University, Washington DC)

Registered author(s):

    The concept of market failure was originally presented by economists as a normative explanation of why the need for government expenditures might arise. Gradually, the concept has taken on the form of a full-scale diagnostic tool frequently employed by policy analysts to determine the exact scope and nature of government intervention. For some time, economists have known that the market failure idea is conceptually flawed. The authors of this article demonstrate why this is so, employing concepts drawn from the perspective of transaction costs. In a review of empirical studies, they further show how the market failure diagnostic leads analysts to make generalizations that are not supported by facts. Transaction cost analysis helps to explain the underlying processes involved. © 1999 by the Association for Public Policy Analysis and Management.

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    Article provided by John Wiley & Sons, Ltd. in its journal Journal of Policy Analysis and Management.

    Volume (Year): 18 (1999)
    Issue (Month): 4 ()
    Pages: 558-578

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    Handle: RePEc:wly:jpamgt:v:18:y:1999:i:4:p:558-578
    Contact details of provider: Web page: http://www3.interscience.wiley.com/journal/34787/home

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    1. David Feeny & Susan Hanna & Arthur F. McEvoy, 1996. "Questioning the Assumptions of the "Tragedy of the Commons" Model of Fisheries," Land Economics, University of Wisconsin Press, vol. 72(2), pages 187-205.
    2. Richard R. Nelson, 1987. "Roles of government in a mixed economy," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 6(4), pages 541-566.
    3. Baumol, William J, 1979. "Quasi Optimality: The Price We Must Pay for a Price System," Journal of Political Economy, University of Chicago Press, vol. 87(3), pages 578-99, June.
    4. Leffler, Keith B, 1978. "Physician Licensure: Competition and Monopoly in American Medicine," Journal of Law and Economics, University of Chicago Press, vol. 21(1), pages 165-86, April.
    5. Anderson, C. Leigh & Swimmer, Eugene, 1997. "Some empirical evidence on property rights of first peoples," Journal of Economic Behavior & Organization, Elsevier, vol. 33(1), pages 1-22, May.
    6. Allen, Douglas & Lueck, Dean, 1992. "Contract Choice in Modern Agriculture: Cash Rent versus Cropshare," Journal of Law and Economics, University of Chicago Press, vol. 35(2), pages 397-426, October.
    7. Farrell, Joseph, 1987. "Information and the Coase Theorem," Journal of Economic Perspectives, American Economic Association, vol. 1(2), pages 113-29, Fall.
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