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Market failures

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  • Marie Daou

    (MRE - Montpellier Recherche en Economie - UM - Université de Montpellier)

  • Alain Marciano

Abstract

Markets are supposed to fail if they cannot achieve a Pareto-efficient resource allocation, which is usually seen as necessitating government intervention. Initially linked to systemic crises, the concept of market failure evolved after World War II to focus on specific inefficiencies. In this chapter, we present the four types of market failures that are usually identified: public goods, externalities, market power and information asymmetry. We discuss the solutions governments can use to address these failures, regulation, taxes and subsidies. We also show that the notion of market failure depends on the standard approach of market and market equilibrium. Another definition of what a market is transforms failures into opportunities for innovation. In this approach, a private collective action could address market failures and inefficiencies as well and even better than government intervention.

Suggested Citation

  • Marie Daou & Alain Marciano, 2025. "Market failures," Post-Print halshs-05301588, HAL.
    • Handle: RePEc:hal:journl:halshs-05301588
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