Market Failure Approach Research Articles

The Imperialistic Aim of Economics: At the Origin of the Economic Analysis of Law

During the last decades there has been an impressive debate on what should be con sidered the future of the application of economic tools to the study of the legal sys tem. Such debate is particularly compelling while many countries, which do not be long to the common law area - original backstage for the modern Law and Economics -, have been showing sympathetic reception trends of that application. The paper addresses these 'future concerns' moving from the origins of the Eco nomic Analysis of Law. The relationship between Economic Imperialism, a phe nomenon arising in the late fifties/early sixties in Economics, and the Economic Analysis of Law is analyzed, while sketching the different approaches of Gary Beck er and Ronald Coase. Moving to legal scholars' works, the methodological premises of Richard Posner and Guido Calabresi's works are mentioned as well. The main conclusion is that the real peculiarity of the studies in Law and Economics after i960 consists in advances beyond the limited Pigovian definition of externality. Hence, the future of the discipline does not stem from the colonization of new legal systems, but from the acknowledgement of the potentialities of a 'market failure approach'.

The Vote Motive

In this classic introductory public choice text, Gordon Tullock analyses the motives and activities of politicians, civil servants and voters. Government 'servants' can most likely be assumed to be pursuing their own interests, just like those in the private sector, although, given the coercive power of the state, the effects can be far from benign. The incentive structures present within public institutions mean that government action may well fail to improve economic welfare and frequently has results different from those intended. The application of the 'economic theory of politics' effectively undermines the market failure approach to government policy-making, which relies on the assumption that benevolent and far-sighted governments are capable of clearing up the failings of private markets. This new edition includes a reflection by Gordon Tullock and commentaries by Peter Kurrild-Klitgaard, Charles K. Rowley, Stefan Voigt and Michael C. Munger. These contributions consider the impact of the original publication of The Vote Motive in 1976. Thirty-years later, with public-sector bureaucracies retaining substantial control over large swathes of the economy, it is clear that policy-makers still have much to learn from Tullock's seminal work.

Environmental Economics: A Market Failure Approach to the Commerce Clause

Congressional authority to enact environmental legislation has been called into question by recent Supreme Court cases suggesting that Commerce Clause regulation is valid only if Congress is regulating economic activity. This Note proposes a market failure approach to guide the new economic inquiry. Under this approach, statutes that correct market failures should be understood as economic in nature. The proposed approach draws on the insights of environmental economics to explain how environmental regulation targets market failures, and it supports upholding environmental statutes—in particular, the Endangered Species Act—as a permissible exercise of Commerce Clause authority.

A system failure framework for innovation policy design

This article sets out a policy framework for implementing ‘system of innovation’ (SI)-based strategies. On the basis of a literature review on system failures, the study designs an SI-policy framework that can provide policy makers with practical leads how to design, analyse and evaluate policy measures in the field of innovation. The functioning of the framework is illustrated on the basis of an evaluation of Dutch cluster policy. From this illustration, it can be concluded that the SI-framework provides helpful leads for policy design and evaluation and renders more specific policy recommendations than the generally used market failure approach.

The significance of Bruce Kogut's and Udo Zander's article, ‘Knowledge of the firm and the evolutionary theory of the multinational corporation’

The Journal of International Business article ‘Knowledge of the firm and the evolutionary theory of the multinational corporation’, by Kogut and Zander (1993), is an important marker in the transition of the dominant conceptual model of the multinational firm from the market failure approach of internalization theory and transaction cost economics theory to the market imperfections approach of capabilities or knowledge-based theories of the firm. In a similar manner, Peter Buckley and Mark Casson’s 1976 book, The Future of Multinational Enterprise, while not the first or necessarily the most comprehensive contribution to the application of Coasian economics to the MNE, marked the switch of focus from market power to market failure as an explanation for the existence of MNEs. While the article itself is an important and well-cited contribution, it is also a fundamental statement that a new theory has arrived to supplement, and partly to displace, the old. Also similar to Buckley and Casson, it arrived at a time that the same transition was gaining traction in the more generic field of business policy and strategy – the ascendancy of Williamson’s (1975) version of transaction cost economics in the earlier case and the rise of a variety of resource-based, capability-based, and knowledge-based models (Barney, 1991; Teece et al., 1997; Grant, 1996) in the case of Kogut and Zander. The critical distinction made by Kogut and Zander is that if the value of the firm is defined as its store of knowledge, and expansion of the firm’s boundaries is related to the transfer of knowledge, then inescapable uncertainties about the value of this knowledge are enough to explain internal transmission, and therefore the existence of firms – opportunism is not required. Therefore, they find the critical role that opportunistic behavior by transactional partners in markets plays in internalization models is not necessary but leads to an overdetermined model. Kogut and Zander maintain that differential costs of transmission of knowledge within the firm Journal of International Business Studies (2003) 34, 495–497 & 2003 Palgrave Macmillan Ltd. All rights reserved 0047-2506 $25.00

Science policy and technology policy in a competitive economy

In the past 15 years there have been major changes in the conduct of science and technology policy in advanced industrial countries. Recognizing that this is an area where Clem Tisdell has made notable contributions, reviews the recent developments around three themes: the nature of science and technology as distinctive bodies of knowledge arising in different institutional contexts; the market failure approach and its development into an evolutionary rationale for science and technology policy; and the UK Technology Foresight Programme as a specific example of the shift in the focus of science and technology policy.

Knowledge, Market Failure and the Multinational Enterprise: A Theoretical Note

This article offers a critique and extension of recent work by Bruce Kogut and Udo Zander. Kogut and Zander are correct to argue that opportunism is unnecessary to explain the existence of the multinational, but wrong to infer that this indicates an absence of market failure. They have identified an important class of transaction costs and market failure which arises in the absence of opportunism, but do not cat doubt on the market failure approach to the theory of the multinational. Their argument that they have identified an important source of ‘ownership’ advantage is unconvincing and is not supported by the empirical evidence. However, Kogut and Zander's work is of considerable significance, but in areas different from those that they highlight.

The failure of market falilures

This article argues that the market failure approach to public policy has several limitations and can often be misleading. This is so for four reasons. First, the theories used are derived from utilitarianism. Second, the market approach cannot decide certain unavoidable questions. Third, attempts to take into account issues of equity are vacuous and give rise to priority problems that cannot be resolved with the tools being used. Fourth, problems of vocabulary trivialize what is at issue.

The Market Failure Approach to Regional Economic Development Policy

This article argues that regional economic development policies should aim to correct failures of private markets to achieve efficiency. Market failures that may rationalize regional economic development policies include involuntary unemployment, involuntary underemployment, fiscal benefits, agglomeration economies, research spillovers, imperfect human capital markets, imperfect information markets, and imperfect financial markets. Development policies to correct market failures may be evaluated by the nonmarket benefits created for society. The market failure approach focuses policymakers' attention on areas where private market performance is weakest and allows comparisons of development policies.