Recuperating from Market Failure: Planning for Biodiversity and Technological Competitiveness

Abstract

In discussions of policy analysis and collective action, market-failure theory is the ruling orthodoxy. In public finance, policy analysis, and urban planning, this theoretical construct is applied to subjects ranging from airport noise to fisheries management. Through painstaking deductive reasoning and numbing repetition, the textbooks have instilled in generations of students the rigors of negative externalities and public goods (Musgrave and Musgrave, 1979; Stiglitz, 1988; and Weimer and Vining, 1989). In this article, I argue that the market-failure diagnosis is a misleading conceptual foundation for public policy making and other kinds of collective action.[1] It is misleading because it assumes that collective resources can be sufficiently understood through analyses of transactions between individual actors. To make this argument, I use two examples to which market failure theory is commonly applied. The first, the decline of regional species diversity, exemplifies the general topic of environmental deterioration, which is ordinarily attributed to the negative externalities of individual land-use acts. The second, declining U.S. industrial strength in optoelectronics, represents the general issue of insufficient technological progress, which is conventionally understood as the result of the market's failure to compensate innovators for the social benefits of RD they are integral realms composed of multiple human, cultural, and biological relationships. Technological paradigms are not discrete pieces of intellectual property but integral bodies of knowledge, skill, and instrumentation. After elaborating on these two examples, I conclude by calling for the reinvigoration of those planning disciplines that respect the economy's environmental and intellectual integrity. Ambiguities in Externalities There is a peculiarity to the literature on external effects that arises from the ways that negative externalities and collective goods are conventionally treated. The negative externality is defined in terms of exchanges among economic agents and their inability or unwillingness to recompense for harms (or benefits) they cause. …