Abstract
Market failure occurs when there are too few markets, non-competitive behaviour, or non-existence, leading to inefficient allocations. Many suggested solutions for market failure, such as tax-subsidy schemes, property rights assignments, and special pricing arrangements, are simply devices for the creation of more markets. This remedy can be beneficial but, if the addition of markets creates either non-convexities or thin participation, then adding markets will simply lead to market failure from monopolistic behaviour. Examples are natural monopolies and informational monopolies. To achieve a more efficient allocation of resources in the presence of such fundamental failures one must explore non-market alternatives.
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