Form Of Market Failure Research Articles

The Demand for Insurance and Rationale for a Mandate: Evidence from Workers' Compensation Insurance.

Workers' compensation insurance, which provides no-fault coverage for work-related injuries, is mandatory in nearly all states. We use administrative data from a unique market without a coverage mandate to estimate the demand for workers' compensation insurance, leveraging regulatory premium updates for identification. We find that a 1 percent increase in premiums leads to approximately a 0.3 percent decline in coverage. Drawing upon these estimates and data on costs, we examine potential justifications for government intervention to increase coverage. This analysis suggests that several forms of market failure-such as adverse selection, market power, and externalities-may not justify a mandate in this setting.

Piguvianism vs. Coasianism: Who Wins?

The main characteristics of approaches to the discussion of the sufficiency of grounds for the introduction / cancellation of state regulation due to the identification of failures in the price mechanism are revealed. The comparison of approaches is presented on the basis of the problem of externalities. In this regard, the provisions from the theory of externalities have been clarified in terms of their definition and correlation with the conditions for optimal allocation of resources, and certain types of external effects are presented. The key types of correction of price mechanism failures are considered, including regulatory intervention, setting up the price mechanism (including the creation of missing markets), maintaining the status quo with externalities. On this basis, the main properties of the Pigouvian and Coasian approaches in economics are determined in relation to the problems of this form of market failure. The features of Coasianism as a functionalist approach to research in contrast to fundamental liberalism are revealed. Taking into account the importance of values, the opportunities for designing of compensatory transactions and the supply and demand of economic knowledge, assessments of the prospects of functionalism and fundamentalisms are presented as a guide to action in the field of discussion and political decision-making. The comparative advantages of functionalism and fundamentalisms in the intellectual traditions of discussing the role of the state in the economy are shown.

Applying Game Theory to Mortgage Framework

To some, the retail banking market is considered an oligopoly. This is not healthy for a country’s economy and its people because it is important for competition to thrive in the banking industry. Any form of market failure or anti-competitive behaviour affects productive efficiency, consumer welfare and economic growth. With the introduction of the Base Rate (BR) to replace the Base Lending Rate (BLR), Bank Negara Malaysia (BNM) seeks to inject transparency into the mortgage framework. Under this system, banks will have to disclose their margins and are not allowed to loan below the BR just to attract customers and boost loan growth. This new framework will allow customers to make better financial decisions whilst having little impact on borrowers. Even though this only applies to personal home loans, it still poses a challenge to competing banks. Those with a seemingly strong niche in consumer financing will be able to offer more attractive and competitive BR leading to better Effective Lending Rates (ELR). This paper proposes using Game Theory (GT) as a method to predict probable outcomes in strategic interactions for BR revision. Monte Carlo Simulation (MCS) will then provide a means of weighing the probabilities of the contributing factors. With the ability to anticipate the competition’s next moves in a quantifiable manner, strategists will be better prepared in understanding and navigating the complex banking system.

New Regulations on Medical Devices in Europe: Are They an Opportunity for Growth?

Increasing demand for modern treatments and significant profit margins are strong incentives for investors and producers. However, the production and use of medical devices is subject to a number of laws, regulations, strict standards, and certification processes. Therefore, the aim of this paper is to analyze patent activity based on the example of the selected country (Czech Republic), compare it with selected foreign countries, and discuss the development of this industry in the context of new medical device regulation (MDR) implementation. The paper is based on the theoretical concept of the relationship between regulation and innovation. The main challenge in the implementation of the new medical device regulations lies in the area of innovation. This is because most innovative research in the medical device sector is undertaken by small to medium enterprises (SMEs) rather than by large companies. SMEs are more vulnerable than big companies when it comes to development because the accompanying administrative costs can be so high that it may force the company to leave the market. Given that the main reason for the existence of economic regulations are various forms of market failure, which occurs when market mechanisms do not lead to results that benefit society, any attempts to redress this situation should naturally lead to greater benefits for society and hence benefits for the given industry as well.

The Role of Regulation in 5G Market Design

The emergence of new technologies forces policy makers to decide whether the existing legal and regulatory framework is appropriate or whether a different approach might better realize their potential benefits for society. While there is broad agreement on the desirability of competition in future 5G markets, national and regional models differ widely regarding the envisioned role of policy and regulation. This paper explores the rationales, strengths, and weaknesses of specific policies that are currently debated, including the regulation of backhaul services, network rollout targets, MVNO obligations, network neutrality rules, and open platform safeguards. It assesses the effects of these regulatory options on investment and innovation in a theoretical framework that considers the strong interdependencies and complementarities between players in the 5G value system explicitly. This reveals the presence of traditional forms of market failure and the possibility of new ones related to coordination requirements of advanced wireless technologies. The analysis suggests that multiple policy equilibria exist, each corresponding to a specific constellation of 5G policy, that are associated with different innovation and investment trajectories of the sector.

Made in Italy in Chinese Market Emerging Issues for Italian Food

Considering the rapid changes in Chinese food habits, in both quantity and quality, the study aims to outline the market potentiality of the made-in-Italy food and focus on some emerging issues concerning Italian specialities that are characterised by higher competitiveness. Starting from the definition of made-in-Italy food, the paper addresses the topic of food safety, analysing policies and legislation. Following an approach from macro to micro aspects, market trends are highlighted, and a ranking analysis is carried out, emphasising the positioning of made in Italy. Concerns related to transaction costs, information asymmetry, and adverse selection are discussed and the Italian sounding phenomenon is addressed. Growing practices of unfair competition, such as food piracy, result in several forms of market failure, damaging the segmentation strategies of Italian companies. Findings propose an estimate of unfair business and offer special indexes of evaluation. Finally, policy and business implications are addressed, and attractive and multiple fields for future researches are suggested.

A new paradigm of knowledge management: Crowdsourcing as emergent research and development

1Drawing from knowledge management theory, this paper argues that the knowledge aggregation problem poses a fundamental constraint to knowledge creation and innovation, and offers a potential solution to this problem. Specific consequences of innovation failure include the failure of research and development to deliver new medicines to address threats such as widespread and increasing antibiotic resistance, the rise of airborne multidrug-resistant or totally drug-resistant tuberculosis, as well as a lack of new drugs to deal with emerging threats such as Ebola. Persistent constraints to knowledge creation exist in the form of market failure, or the failure of profit-seeking models of innovation to internalise the positive externalities associated with innovations, as well as academic failure, or the failure of academic research to provide much needed innovations to address societal problems. However, a lack of theory exists as to how to transcend these constraints to knowledge aggregation. This paper presents a probabilistic theoretical framework of innovation, suggesting that the ‘wisdom of the crowd’, or emergent properties of problem-solving, may emerge as a function of scale when crowdsourcing principles are applied to research and development. It is argued in this paper that the consequences of a lack of knowledge of innovation failure are already upon us, and that a radical new approach to knowledge management and innovation is needed.

The spatial effect of fiscal decentralization and factor market segmentation on environmental pollution

Externality is a form of market failure, and also a starting point for government intervention. Environmental quality, as local public goods, has a characteristic of regional spillover, thus the intervention of government is crucial. Fiscal policy is widely seen as an effective tool for environmental management. The existing literature about fiscal decentralization’s effect on environmental pollution did not consider about spatial correlation in factor market segmentation. To explore such decentralized effect through factor distortions, we develop a two-sector model on the constraint of pollution emissions and market segmentations, and conduct an empirical estimation using Chinese provincial panel data from 15 years. The results show that there is a big difference between expenditure and revenue decentralization on pollution, furthermore, market segmentation exacerbated the environmental effects of fiscal decentralization and its positive role on environmental pollution is statistically more significant. Therefore, a better way out of pollution for policy making viewpoint is to adjust the decentralization structure and to break the productive factor market segmentation.

Is UPOV 1991 a Good Fit for Developing Countries?

In a market of free knowledge, knowledge has all the characteristics of a public good. This may lead to a ‘free-rider’ problem, resulting in market-failure in the form of sub-optimal (incentives for) creation of knowledge in the form, for example, of artistic works and inventive activity. While exclusive rights regimes such as those incorporated in copyrights or patent laws seek to address these market failures, unbridled exclusivity can itself lead to other market failures, by defeating, for example the public interest in wide dissemination of works and inventions. Accordingly, intellectual property (IP) protection regimes are traditionally designed to avoid market failures associated with public goods on the one hand, and those associated with over protection/privatization on the other. This article revisits the market failure theory in the context of plant variety protection regimes in developing countries, with specific reference to the Indian regime in comparison with UPOV 1991. It finds that, unlike knowledge incorporated in other forms of intellectual creations (artistic works, inventions etc.), knowledge contained in formally bred/improved plant varieties are such that do not meet the criteria of non-excludability that characterizes public goods. Outside the scope of such formally bred varieties, farmer ‘copying’ of seeds can (and arguably, does) actually overcome the public goods problem associated with sub-optimal distribution and can even lead to further innovations. Furthermore, the article argues that the most popular IP protection regimes and associated governmental policies in relation to plant varieties fail to recognize the actual market failures that plague this field of innovations today, thereby introducing new forms of market failure rather than addressing any existing ones. The new market failures that can result from such regimes and policies are not limited to sub-optimal dissemination, but, most pertinently, include skewing of the balance of incentives away from informal (farmer level) innovations and in situ agrobiodiversity conservation. The plant breeders’ rights regime under UPOV 1991 and similar legislations, need, therefore, to be re-evaluated, especially in the context of agro-biodiversity rich developing countries. Legal analysis of a recent farmer-innovation related controversy in India, as well as the plant variety application trends under the Indian Protection of Plant Varieties and Farmers’ Rights Act, 2001 (‘PPV&FR Act’) support the findings of this paper.

Breaking automotive modal lock-in: a choice modelling study of Jakarta commuters

The automotive domination in high-growth Asian conurbations is typically seen as the outcome of conventional market forces driven by income and aspirational consumer motivations. Proposed here is a more complex explanation, where path-dependent growth and associated positive feedback mechanisms underlie a staged process that evolves into a non-Pareto efficient form of market failure, inflicting a decline in the quality of urban life. Positive feedback mechanisms and imperfect information create ‘automotive modal lock-in’ (AML) forming a barrier to possible superior alternatives. This study uses a choice modelling experiment with Jakarta commuters to test the role of negative externalities in modal choice, measuring the extent to which commuters may be willing to trade off automotive use for a reduction in negative externalities. The results present an indication of how the process of AML reversal could begin.

Underprotection of Unpredictable Statistical Lives Compared to Predictable Ones.

Existing ethical discussion considers the differences in care for identified versus statistical lives. However, there has been little attention to the different degrees of care that are taken for different kinds of statistical lives. Here we argue that for a given number of statistical lives at stake, there will sometimes be different, and usually greater, care taken to protect predictable statistical lives, in which the number of lives that will be lost can be predicted fairly accurately, than for unpredictable statistical lives, where the lives are at stake because of a low-probability event, such that most likely no one will be affected by the decision but with low probability some lives will be at stake. One reason for this difference is the statistical challenge of estimating low probabilities, and in particular the tendency of common approaches to underestimate these probabilities. Another is the existence of rational incentives to treat unpredictable risks as if the probabilities were lower than they are. Some of these factors apply outside the pure economic context, to institutions, individuals, and governments. We argue that there is no ethical reason to treat unpredictable statistical lives differently from predictable statistical lives. Moreover, lives that are unpredictable from the perspective of an individual agent may become predictable when aggregated to the level of a societal decision. Underprotection of unpredictable statistical lives is a form of market failure that may need to be corrected by altering regulation, introducing compulsory liability insurance, or other social policies.

Are Consumer Decision-Making Phenomena a Fourth Market Failure?

This paper challenges the increasingly common view that the findings of behavioural economics constitute a fourth type of market failure. It shows how many behavioural phenomena, while they do imply departure from the standard competitive market model, undermine the use of this idealized model for policy analysis. A case study of the three-part tariff illustrates two problems: the validity of inferring that consumers’ choices after an intervention are superior to previous choices and the potential for distributional consequences when policy alters choice. These issues make behavioural phenomena fundamentally different from the standard market failures, as the deductive theoretical framework can no longer provide criteria to determine whether a policy improves consumer welfare. Thus, conceiving of behavioural phenomena as another form of market failure is to underestimate their implications for policymaking.

Book review: The Strange Non-Death of Neoliberalism, by Colin Crouch and Neoliberalism in Crisis, by Henk Overbeek and Bastiaan van Apeldoorn (eds.)

Colin Crouch The Strange Non-Death of Neoliberalism, Polity, Cambridge, 2011; 199 pp; 97807456052214 15 [pounds sterling] (pbk) Henk Overbeek and Bastiaan van Apeldoorn (eds.) Neoliberalism in Crisis, Palgrave Macmillan, Basingstoke, 2012; 268 pp; 9780230301634 57 [pounds sterling] (hbk) As the focus of study has shifted from the causes of the 2007-8 global crisis to its consequences, the future of neoliberalism has become one of the main preoccupations of left scholarship. The crisis has revealed fundamental weaknesses in the new policy architecture of globalisation, privatisation and deregulation, and many critics looked forward to a reassertion of alternatives that would reverse these processes, or at least rein them in. Colin Crouchs book is deliberately aimed at a non-specialist audience, and seeks to explain the yawning gap in neoliberalism between the simplistic ideology of freedom and enterprise, and the reality of giant corporations that dominate markets and states alike. The opening chapter provides a concise history of neoliberalism, focusing on how it came to the fore with the crisis of Keynesianism and social democracy in the 1970s. The following five chapters analyse what the author sees as the major elements of neoliberalism. Chapter 2 provides the liberal auto-critique of'market failures', the most significant of which is monopoly, or more precisely the excessive power of large corporations. This is then explored directly in Chapter 3, in which Crouch shows how the Chicago School argued that the greater overall efficiency of the large firm more than outweighed the welfare loss attributed to market power, thereby undermining traditional US and UK antitrust policy. This demonstrates that corporate power is political as well as economic, contradicting the liberal insistence that they can and must be separated. Chapter 4 then examines the related claim that the public sector is innately inefficient as a service provider, requiring reforms that either transfer provision directly to the private sector, or subject public provision to simulated market discipline. However, monopoly and other classic forms of market failure ensure that any gains in 'productive efficiency' accrue very largely to private providers, not to service users; they also create a web of mutual promotion between private interests and state managers. Chapter 5 traces the origins of the 2008-9 financial crisis directly to the neoliberal transformation of global finance, corporate governance and the day-to-day finances of businesses and households. Crouch defines this as a 'privatized Keynesianism', in which big finance dictates to governments not only the rules of macroeconomic policy, but also their regulatory practices, and in Chapter 6 he goes on to challenge the pretensions of 'corporate social responsibility' as a basis of effective self-regulation. In the final two chapters, Crouch looks for alternatives that might restore a public realm oriented to the common good. Here the emphasis remains on corporate power as the real problem, while the solution is to be found in civil society, including political parties, religions, campaigning groups, volunteer organisations and the professions. Confronting the realities of corporate power reveals the weakness of this approach, but the alternative of a return to state power offers only a repeat of the state-market cycle. In effect, Crouch is calling for a pragmatic long march in which civil society must constantly reassert moral values and the collective good against corporate power. This is all well and good, but the problem is that the concept of civil society, at least as set out here, is deeply imbued with the political philosophy of liberalism. Behind 'the corporation' lies not simply a power elite of owners and managers, but a system of class rule; but because he does not recognise this, Crouch can offer nothing that would potentially transcend the contradictions of liberal capitalism and the false antinomies of its dominant ideology. …

Regulatorní zásahy, podpora centrální banky a dohled a kontrola mezinárodních finančních trhů

The aim of the article is to answer a question to what extent the recent crises in international financial markets have confirmed the need for formal regulatory intervention and for official central bank support and subsequently, to what extent transactions in wholesale international financial markets should be subject to official oversight and control or if they can be left to internal market devices. The paper begins with an analysis of major financial disruptions in the last 20 to 25 years from which key findings and conclusions are derived. Subsequently, particular forms of market failure are analyzed with regard to the need of oversight and control of international financial transactions. The author concludes that wholesale international financial markets can be mostly governed by internal market devices. Nevertheless, governments and central banks should have suitable tools of oversight and control of financial transactions and regulatory means of intervention at disposal once the stability of international financial system is at risk.

Urban food insecurity in Cape Town, South Africa: An alternative approach to food access

This paper presents data from the African Food Security Urban Network's 2008 baseline survey of Cape Town. This survey found that 80% of the sampled households could be classified as moderately or severely food insecure. In urban areas the main driver of food insecurity is not availability but access. Access is typically viewed as being directly related to income. Households were found to use formal food markets, but more frequently depended on informal sector markets and informal social safety nets. The more food insecure and income poor a household was, the more likely it was to be dependent on less formal means of securing food. This suggests that there is some form of market failure in the formal food system. This paper therefore advocates for a food systems approach that validates and supports the role that the informal sector plays in urban food security.

The Limits of Carbon Disclosure: Theorizing the Business Case for Investor Environmentalism

This article examines the potential effectiveness of socially responsible investment (SRI) and investor environmentalism through carbon disclosure in terms of their key goal of creating real financial incentives, through share price performance, for firms to pursue climate change mitigation. It does so by theoretically assessing the two main assumptions which underpin investor environmentalism as promoted by SRI funds and NGOs such as the Carbon Disclosure Project: those concerning the power of institutional investors, and the “business case” for climate change mitigation. In doing so, it argues that the potential of using institutional investors to create real financial incentives for climate change mitigation, in the form of share price performance, has been considerably overestimated and that there is not even a strong theoretical case for why carbon disclosure should work in this regard. This is argued based on the structural constraints faced by most institutional investors, as well as the fundamentally incorrect assumption about climate change, that it is a form of market failure, which theoretically underpins these initiatives.

On Behavioral-Environmental Economics

Traditional environmental and resource economics uses rational choice theory to guide the evaluation of alternative policy options to correct market failure. Behavioral economics, however, has challenged this conventional mindset by showing how people frequently make choices and state values that deviate from the presumption of rationality, i.e., behavioral failures. This article explores the potential of behavioral economics to advance the science of environmental and resource economics. We address four questions: (1) How can behavioral failures affect thinking about environmental policy? (2) When are behavioral failures relevant to the science of environmental economics? (3) Is behavioral failure just another form of market failure? (4) Do we have a new behavioral-environmental second best problem? We conclude that the evidence from behavioral economics remains insufficient to support the wholesale rejection of rational choice theory within environmental and resource economics. But this does not mean anomalous behavior is non-existent; nature's goods and services frequently lack the active market-like arbitrage needed to encourage consistent and rational choice. We believe it is crucial to identify the economic circumstances, institutional designs, and social contexts in which rational choice theory works and those where it fails to capture observed behavior.

Zur Neuordnung des Lotteriemarktes in Deutschland / About the rearrangement of the German lottery market

Zusammenfassung Wie in den meisten Ländern so unterliegt der Glücksspielmarkt auch in Deutschland einer starken staatlichen Regulierung. Untersuchungsgegenstand des vorliegenden Artikels ist der Markt für Lotterien aus ordnungsökonomischer Sicht, der als ein Teil des gesamten Glücksspielmarktes momentan durch den Deutschen Lotto-Toto-Blocks und die von ihm angebotenen Produkte wie das populäre Samstagslotto geprägt wird. Mit Hilfe eines Referenzmodells, das auf dem Ordnungsleitbild der Marktwirtschaft basiert, kann gezeigt werden, dass eine staatliche Intervention durch das Auftreten negativer Externalitäten in Form der Spielsucht und ihrer Folgen sowie dem Vorliegen von Informationsmängeln begründet werden kann. Weitere Aspekte des Marktversagens können hingegen nicht zweifelsfrei nachgewiesen werden. Anhand eines mehrstufigen Prüfschemas werden auf dieser Grundlage verschiedene Alternativen angebots- und nachfrageseitiger Interventionen inklusiv eines vollständigen Verbots von Lotterien überprüft. Nach dessen Abschluss lässt sich konstatieren, dass aus ordnungsökonomischer Perspektive eine Informations- und Aufklärungspflicht der Anbieter über die Risiken des Glücksspiels zweckmäßig ist. Zur Sicherstellung eines nachhaltigen Wettbewerbs stellt weiterhin die Vergabe von Lizenzen an Lotteriebetreiber eine ziel- und ordnungskonforme Intervention dar. Ein Aufrechterhalten des Status Quo in Form des staatlichen Monopols kann hingegen nicht als ordnungs- bzw. systemkonform bezeichnet werden.

Cooperatives and Market Failure: Workers’ Cooperatives and System Mismatch

Cooperatives function in market economies, but they are not always served well by markets. Workers’ cooperatives avoid use of the labor market by definition, but they encounter forms of market failure and system mismatch in equity markets. Economic theory of the labor-managed firm and the historical development of the Mondragón system of financing cooperatives provide insight into these problems. This article argues for new strategies to assist capital formation in cooperatives.

ON ASPECTS OF FOOD SAFETY AND INTERNATIONAL TRADE

International supply chains in the food industry have lengthened in recent years and new sources of risk have arisen. With increased consumers' incomes, perceptions about food safety have become sharper and food safety has become an important issue in public policy both domestically and internationally. The safety of food is a credence characteristic which gives rise to a particular form of market failure involving either asymmetric information and moral hazard or symmetric imperfect information. An example from a recent experience in the UK was used to illustrate the issue of moral hazard, as well as the possible responses to it. A partial equilibrium model of an open economy was developed to investigate how the moral hazard problem that is caused for importing firms by the actions of exporting firms could be solved by the market rather than by government intervention.