Market Failure Research Articles

International Trade and Environmental Protection: Revisiting Hardin’s “Tragedy of the Commons”

Twenty-eight years after the emergence of the World Trade Organisation (WTO) regime, the trade-environmental protection relationship seems to have achieved some harmonisation from an initial chequered one, though not without some forms of lopsided balancing of the variables. This work explores the relationship between international trade and the environment, revealing whether the competing values are balanced. The methodology adopted is doctrinal, with a comparative and analytical approach involving desk and library research. The work is bifurcated into six parts, commencing with an introduction in the first: the second flesh out international environmental agreements relevant to the trade-environment interaction. The third part examines principles of international environmental law. The paper reflects unilateral trade measures in the fourth part. The fifth part takes stock of WTO jurisprudence. While considerable efforts have been made to mainstream environmental protection into trade objectives through the WTO jurisprudence, there remain some forms of market failures, making the trade-environment relationship lopsided, with inadequate attention given to the environment, which brings to fore the need to revisit David Hunter’s metaphoric invisible elbow destroying the common goods created by an invisible hand.

The impact of imperfect financial markets and stock holdings on corporate innovation: Evidence from China

According to previous research on developed countries, companies engaged in more corporate innovation are likely to have larger stock holdings. Companies are more likely to reserve stock holdings in a transitioning economy like China due to the prevalence of financial market flaws. This research suggests stock ownership and banking ties to the government as two alternative credit financing channels that Listed Chinese companies may employ to mitigate the effects of market imperfections by attracting foreign investment. Financial limitations can be efficiently mitigated through external finance facilitation channels (EFFCs) by lowering debtors and businesses have different levels of knowledge. However, the EFFC effect is diminishing due to the improved market environment brought about by China's ongoing financial reform. This research, therefore, considers potential avenues for reducing the EFFC effect, with practical policy implications for reforming China's financial markets to lower corporate innovation costs.

The Relationship between Climate Action and Poverty Reduction

Abstract There is growing awareness that actions by policymakers and international organizations to reduce poverty, and those to mitigate and adapt to climate change, are inextricably linked and interwoven. This paper examines relevant academic and policy literature and evidence on this relationship and explores the potential for a new form of development that simultaneously mitigates climate change, manages its impacts, and improves the wellbeing of people in poverty. First, as a key foundation, it outlines the backdrop in basic moral philosophy, noting that climate action and poverty reduction can be motivated both by a core principle based on the right to development and by the conventional consequentialism that is standard in economics. Second, it reviews assessments of the current and potential future impacts of weakly managed climate change on the wellbeing of those in poverty, paying attention to unequal effects, including by gender. Third, it examines arguments and literature on the economic impacts of climate action and policies and how those affect the wellbeing of people in poverty, highlighting the importance of market failures, technological change, systemic dynamics of transition, and distributional effects of mitigation and adaptation. Finally, the paper surveys the current state of knowledge and understanding of how climate action and poverty reduction can be integrated in policy design, indicating where further research can contribute to a transition that succeeds in both objectives.

Analyzing Optimal Marketing Channels in the Vegetable Supply Chain: Exploring Factors Influencing Marketing Channel Selection

Potato is amongst most important vegetables being used in kitchens of ordinary and common men. The income elasticity of demand of potato is relatively high as compared with other vegetables. In Pakistan, the traditional fruit and vegetable markets and considered to be the places of pure competition and farmers are linked to these markets via different marketing channels. This study delves into the analysis of optimal marketing channels within the vegetable supply chain, with a focus on understanding the factors that influence the selection of these channels. The study used cross-sectional primary data gathered from different supply chain actors, including 120 potato growers, 20 retailers, 20 consumers, 16 commission agents, and 16 wholesalers from two districts of Punjab, namely Okara and Chinote. This research employs a two-fold methodology. First, it involves the identification of the optimal marketing channel among five alternatives using a unique ranking technique methodology. Second, it employs regression analysis with binary endogenous treatment to discern the factors affecting the choice of marketing channels. The study sheds light on the intricacies of marketing channel decisions in the vegetable supply chain, offering insights into the preferences and considerations of stakeholders in the Okara and Chinote districts of Punjab, Pakistan. The findings of the study contribute not only to the understanding of optimal channel selection but also to the broader knowledge of the factors that influence these decisions. These insights are valuable for practitioners, policymakers, and researchers aiming to enhance the efficiency and effectiveness of marketing strategies within the agricultural sector, benefiting farming communities and the country as a whole.

CORE Econ: a Neoclassical Synthesis for the twenty-first century?

This paper provides a critical review of CORE Econ’s The Economy and associated materials. It argues that there is a need for reworked economics textbooks and that CORE Econ’s approach to this project – to replace mathematical abstractions with relevant real-world economics and to overcome the free market bias of introductory economics course – is well-founded. It is argued that The Economy contains a wealth of material which, in the hands of a sophisticated teacher, could form the basis of excellent introductory and intermediate economics modules. Despite this, however, the paper argues that the newly charted path through the economics discipline – using game theory and market imperfections as the entry point – is not easy to traverse. The demotion of Marshallian supply and demand is welcome and overdue, but its replacement is not yet fully formed. The CORE Econ authors’ claim that they present a unified model in which microeconomics and macroeconomics are coherently integrated – a new Neoclassical Synthesis – is overstated. In particular, the paper argues that students who do not have substantial access to tutoring and mentoring will find the text hard. Those students with only limited guidance and support – due to large cohorts, outside commitments or other reasons – are likely to struggle to learn directly from the text. For this reason, The Economy may favour stronger students and elite institutions over those further down the academic hierarchy. Most fundamentally, it is argued, the issues that surface in The Economy go beyond the specific implementation of a textbook, and reflect problems with the discipline itself. The Economy reflects the view that all economic problems can ultimately be understood in terms of individual optimisation. This assumption is highly controversial. A deeper rethink of how we teach undergraduates in economics is needed.

Exploring the role of interest rates, macroeconomic environment, agricultural cycle, and gender on loan demand in the agricultural sector: Evidence from Mali

AbstractFormal credit plays an important role for the development of the agriculture sector in developing countries because many farmers are characterized as liquidity constrained. Access to credit can increase farmers' purchasing power for inputs and agricultural technology, thus raising the overall productivity. Farmers in Mali are particularly vulnerable to shocks, such as heavy precipitation events. Access to liquidity to increase the resilience of the agricultural sector is essential. Therefore, higher financing volumes are required, which make the analysis of loan demand in agriculture of interest. The purpose of this paper is to empirically investigate the role of the interest rate, the macroeconomic environment, the agricultural cycle and the gender of the farmer on the loan demand in the agricultural sector from a country in the Sahel. Unique and comprehensive loan data at the farm level, provided by a commercial Malian bank, is used for this analysis. The analysis covers the period from 2010 to 2020. Two different estimation strategies are combined. First, an ordinary least square regression is applied with the granted loan amount as the dependent variable. Second, the machine learning technique, least absolute shrinkage and selection operator, is applied to select the most relevant features to be used as explanatory variables in the estimation. The results reveal that the interest rate, the gross value added, the farmer's gender as well as the agricultural cycle have statistically significant effects on the granted loan demand in agriculture. These results are of interest to policymakers, who deal with financial inclusion as well as market failures, and agricultural financial institutions who could incorporate such information in the design of future loan products to stimulate farmers' loan demand, especially for female farmers. [EconLit Citations: G20, G21, O13, O16, Q14, Q18].

Economists and the climate

To date, environmental economists have been very engaged with questions surrounding climate change while interest from mainstream economics has been moderate. Economists have been quite unanimous in their recommendation to focus climate policy on pricing carbon. This is an important point, often under-appreciated by other disciplines. Still, the message may have been oversimplified and exaggerated. In global policy, carbon pricing has not reached its full potential. The climate problem is complex and interrelated with several other problems. The existence of multiple market failures and serious problems of policy acceptance complicate policy design. Many other, more sophisticated economic messages have also been drowned out. We discuss the role of economists as researchers as well as teachers and communicators to policy makers, ultimately encouraging economists to deepen their engagement in solutions to climate change.

Book Review "The Economics Anti-Textbook: A Critical Thinker’s Guide to Microeconomics Authors: Rod Hill and Tony Myatt"

The book titled "The Economics Anti-Textbook: A Critical Thinker’s Guide to Microeconomics" by Rod Hill and Tony Myatt offers a thorough critique of mainstream microeconomic theories typically presented in traditional textbooks. Structured with a unique approach, each chapter is divided into two sections: the standard text and the critical text title. This dual presentation provides readers with an insightful comparison, where the authors systematically challenge and question the assumptions and narratives commonly found in economic education. The book covers a wide range of topics, including market structures, efficiency, externalities, income distribution, government intervention, and globalization. Notably, the authors debunk the idealization of perfect competition, underscore the importance of externalities and market failures, and scrutinize the marginal productivity theory of income distribution. Furthermore, they analyze the impact of government policies on income redistribution and assess the implications of global trade and globalization. Throughout the book, the authors advocate for a more nuanced and realistic understanding of economic phenomena, urging readers to incorporate ethical considerations, environmental concerns, and power dynamics into their economic analyses. This review provides a comprehensive overview of the book's central themes, emphasizing its unique structure and critical perspective on traditional economic teachings.

Dampak Oligopoli Dan Industri Modern Terhadap Masyarakat

Oligopoly is a form of imperfect market competition where the supply of a product is controlled by a number of companies. In general the number of companies is more than two but less than ten. Each company decides its own policy and all company actions as price changes will be taken into account by other companies, because every company in the market believes in the policy of a company. This business will affect the income and profits of other businesses. In an oligopoly market, each company positions itself as part of a market game so that its profit base is based on the behavior of its competitors. So all promotional efforts, advertising, new product introductions, price changes, etc. This is done with the aim of luring consumers away from competitors. The main cause of this oligopoly is the successful management of business operations to achieve economies of scale which leads to the effectiveness and success of sales promotions in the long term, because it will increase market share. Oligopoly activities are often with the aim of inhibiting potential business participation in the market. More than that, it also aims to enjoy normal profits below the maximum by setting a limited selling price so that price competition between business actors who carry out an oligopoly does not exist.

A Comparative Analysis on Economic Roles of Government and Principles of Taxation between Public Economics and Siyasah Shar‘iyyah

This research is an exploratory study on the similarities and differences of the justifications, objectives, roles of government and principles of taxation between public economics and siyasah shar‘iyyah. It aims to contribute towards integration of knowledge between modern economic theories and Islamic heritage in public economics. Despite similar focus on governance and social welfare, there is a lack of comparative study between public economics and siyasah shar‘iyyah in the literature. The research utilizes qualitative analysis on relevant textual materials on public economics and siyasah shar‘iyyah to identify and compare the major themes in terms of arguments for the establishment of a government, its economic objectives and roles, and taxation principles. The establishment of a government in public economics is based on the need to balance between efficiency and equity, address market failures, and provide public goods. Siyasah shari‘iyyah argues for a government based on fulfilling maqasid shari‘ah, uphold justice, and protect the rights of people. The principles of taxation in public economics often emphasize efficiency, equity, revenue sufficiency, neutrality, and administrative feasibility. In contrast, the principles of taxation in siyasah shar‘iyyah prioritize justice, prohibition of exploitation, funding public services, transparency and accountability, and wealth distribution in accordance with Islamic values. Originality/Value: The advancement of Islamic economics requires the integration of modern economic knowledge with divine revelation. Since public economics is a specialized subfield within economics, the integration efforts with siyasah shar‘iyyah have been notably deficient. This study aims to address this gap by undertaking a comparative analysis of fundamental principles and objectives between public economics and siyasah shar’iyyah.

Balancing between competition and regulation in healthcare markets.

Systems of managed competition naturally seek the middle ground between competition and regulation. This debate essay makes the case for adjusting the level of regulation according to the characteristics of the submarket in question. We first develop a theoretical framework that can be used to identify the services in which relatively free competition will be beneficial. The framework is grounded in the economic literature and consists of eight criteria. Targeted regulatory tools are then discussed that can be used to structure submarkets in which these criteria are not (fully) met. Applying this framework and targeted interventions, regulators gain the flexibility to react to potential market failures, without foregoing the benefits of managed competition where it works well. This analysis is highly relevant for countries in transition to managed competition. Regulators can identify potential failure in submarkets for medical services, and apply the necessary regulatory tools to prepare for a smooth transition.

Reliability options: Regulatory recommendations for the next generation of capacity remuneration mechanisms

The policy and regulatory debate raised after the 2022 energy crisis has reaffirmed capacity remuneration mechanisms (CRMs) as a key element of the electricity market design required to drive the much-needed energy transition. Reliability options are a CRM product that effectively addresses the market failures impacting security of supply, while minimising the interference with the different segments of the energy market. This article provides a comprehensive and detailed assessment of the design elements of reliability options and advances recommendations that can be useful for regulators who may consider introducing this scheme in their electricity markets. The analysis benefits from lessons learned in those power sectors where reliability options have been implemented (Colombia, ISO New England, Ireland, Italy, and Belgium). This allows to narrow the gap between the theoretical debate and the real-world implementation of these mechanisms.

The Causal Relationship between FinTech, Financial Inclusion, and Income Inequality in African Economies

Income inequality is one of the biggest problems affecting developing economies. Market imperfections and information asymmetry lead to lack of access to the financial system, which will exacerbate income inequality. The growing adoption of FinTech (financial technology) has altered the structure of how financial services are delivered and makes these services accessible to underserved groups. This study explores the causal relationship between FinTech development, financial inclusion, and income inequality in a panel study of 29 African countries. We apply pooled OLS regression and structural equation models to samples from the years 2011, 2014, and 2017. The findings indicate that FinTech has a positive and statistically significant effect on financial inclusion and income inequality in African countries. The study results also demonstrate that financial inclusion plays a pivotal mediation role in the negative effect of FinTech on income inequality in African economies. Further, financial inclusion (the ability to create a bank account and borrow money) negatively and significantly affects income inequality in African countries, whereas saving shows a positive and significant impact on income inequality. Overall, our study results suggest that to reduce income inequality and increase the effectiveness of FinTech investments, policymakers in African countries should design proper policies to enhance financial inclusion and offer more accessible and equitable financial services.

ეკონომიკური პოლიტიკის როლი „მწვანე ენერგეტიკაზე“ გადასვლის პროცესში

Energy plays an important role in the economic and social development of the world. Moreover, the history of economic and social development can be considered as the history of energy development (Li N..., 2021). After the Industrial Revolution, use of fossil fuel-based energy (coal, oil, and gas) greatly increased productivity. However, environmental pollution caused by these kinds of energies has gradually become a challenge of the modern world. Recent studies confirm that the consumption of fossil fuels causes negative effects on the environment (Wu MR..., 2018). In order to reduce the negative impact on the environment, in various international negotiations, including the Paris Agreement, the replacement of traditional fossil fuels with renewable - green energy resources, is considered. Including solar, wind, hydrogen, hydro energies and etc; which does not cause harmful effects on the environment. Also, the transition to green energy is considered a necessary condition for sustainable development. Since the 1980s, despite various global climate policies, carbon dioxide emission levels have been steadily increasing; Excluding the disruption caused by the COVID-19 pandemic (BP..., 2022). It is a significant fact that emission reduction obligations are voluntary and self-fulfilling, without any legal penalties (Ganda, 2019). Consequently, these policies have neither brought significant benefits to countries nor any punitive measures for their violations. Based on this, it is necessary to investigate the contributing factors at the local level and ensure an effective economic policy. To analyze this issue, this paper reviews economic theory, several market failures, namely: environmental and knowledge spilover "externalities” and practical ways to overcome these failures. Most of the policy instruments used to drive the green energy transition, such as regulations, subsidies and tax incentives, have been known from industrial policy. However, for the green transformation to be real and effective, the dose of government intervention needs to exceed the norms imposed by "traditional" industrial policy. Supportive public policies can encourage change by shifting profit opportunities from polluting investments to green investments. However, these changes always involve "losing" parties who will try to lobby their interests in government forces; This will create a risk for both political and economic stability. These interests need to be well studied and managed. However, given the complexity of the green transformation, it is unrealistic to expect that government policy alone will be able to achieve this. In addition to the involvement of the government, there is a need to develop a policy that will unite non-state forces as well. For example, environmental non-governmental organizations and consumer associations, as well as other forces operating in the economy, including firms, investors and households.

Environmental Policies and directed technological change

This article evaluates if and to which extent policy can steer innovation towards eco-friendly technologies. We construct a cross-country dataset on sectoral green innovation and complement it with data on policies designed to address environmental market failures: environmental taxes, regulation, and R&D subsidies. While all of these tools exert a positive effect on green innovation, our IV estimates reveal substantial heterogeneities across policies. Overall, green innovation reacts most strongly to R&D subsidies for renewables, but interaction effects between different policies need to be considered.

Moral Capital as an Element of Successful Transitions

Moral capital is of great importance for both the economic and non-economic well-being of a society. However, moral capital is likely to erode during transitions, especially economic ones. The aim of the work is to determine the mechanisms through which the economic and political transition contributes to the erosion of moral capital, but also which measures can affect the rebuilding of moral capital. Analyzing individual cases, especially in Serbia, we draw general conclusions about the impact of economic and political transition on the decline of moral capital in transition countries. In this paper, we argue that the processes put in motion during economic and political transitions that lead to loss of moral capital are likely to result in a new equilibrium state. This state is characterized by the migration of the bearers of moral capital both to the margins of society and out of society and is highly unlikely to be reversed without a focused intervention by the state and society. We further argue that economic theory could both offer a justification for such an intervention and inform on the most effective way to conduct it. This is because the loss of moral capital can be seen as an instance of market failure in transition, one in which parts of the transitional elite are imposing a negative externality on the rest of society. Internalizing this externality -by making the culprits responsible could make the transition more successful; it would benefit justice and prosperity not only in the current economic transition but also in the future restructuring of the national economy and society. We argue that measures to restore moral capital ought to combine monetary transfers, improvement of institutional framework, and immaterial incentives with the aim of initiating processes that could benefit the whole society. Legally required monetary transfers should repair direct damage caused by corrupt actions, but should not benefit any particular individual, while immaterial incentives should be initiated both by the state and the wider society. We found out that activities of transition elites contribute to negative externalities, such as deterioration of moral capital, which results in less social and economic well-being. Additionally, we propose measures which can contribute to the internalization of these externalities.

Piketty inequality, meta-market failures and the new role of the state

We argue that the celebrated 2014 Piketty thesis that thriving markets in advanced economies generate an ever increasing income inequality restores policy relevance to the Second Fundamental Theorem of Welfare and restores the role of the state in economics which the First Fundamental Theorem of Welfare seems, and the neoconservatives claim, to have marginalized. The Piketty thesis disproves the Kuznets hypothesis which says that the equity-deficit of market allocation is a temporary inconvenience which will dissipate as per capita income grows, thus, making state intervention unnecessary. Policies that enhance per capita growth may then replace policies of direct redistribution in the pursuit of equity. Piketty insists that this phenomenon is not due to some garden variety market failure but is due to the very dynamic that drives market prosperity, viz., private ownership of and the free enterprise deployment of capital. It is thus a meta-market failure. In properly functioning capitalist markets henceforth, the state still needs to directly push back on this metamarket failure to save capitalism from its own excesses and democracy from becoming collateral damage.

INDUSTRIAL POLICY IN ASIAN NEWLY INDUSTRIALIZED COUNTRIES: CONTROVERSIES, REVIEW AND LESSONS

The paper’s aim is to use the successful example of the newly industrialized Asian countries, as well as the countries of the East Asian region in general, to prove the need to implement industrial policy in many countries, both those lagging behind in industrial development and those that have reached the technological frontier. The paper describes the evolution of industrial policy in these countries and what distinguishes them from other developing countries that were unsuccessful in its implementation: the developmental state, which recognized timely the turning point from the strategy of import substitution to the strategy of export promotion, implemented both strategies simultaneously, picked winners, provided support to infant industries through selective interventions, but also disciplined the recipients of its support, tracked its own comparative advantages and anticipated their changes, with a strong synergy between the state and private sectors, and looking at Japan as a model of industrial development, i.e. the lead goose. Industrial policy is one of the most controversial issues in economics. There has been a long debate between two schools of thought - orthodoxy and heterodoxy - as to whether there is a need for industrial policy in general, as well as the role of the state in the process of its creation and implementation, as opposed to the free market model of development in which there is no place for industrial policy, and if it appears it can be only of a general nature, and by no means in the form of selective interventions. Over the last 10 to 15 years, there has been a revision both at the academic level and in the real world that has made industrial policy more acceptable, and thus the debate about it has become less ideologically colored and more pragmatic and nuanced. At the theoretical level, the market fundamentalist view of little theoretical justification for industrial policy has lost its dominance. Despite maintaining neoliberal orthodoxy as the advice of international financial institutions in the process of creating economic policy in developing countries, industrial policy remained important for the promotion of industrial development, especially the infant industries. It is accepted that there are many types of market failures that must be addressed through industrial policy. It is increasingly recognized that industrial policy is not just a highly idiosyncratic practice associated only with the miracle economies of East Asia, but what most of today’s developed countries used when they were in the position of the catching-up countries. As a conclusion, the paper discusses the possibility of transferring the East Asian model to other countries, and sheds light on the determinants of industrial policy success and failure. The key conclusion is that there is room for successful industrial policy even in countries that have reached the technological frontier and want to push it further, as well as in countries lagging behind in industrial development, although the global context in which industrial policy is situated has changed over time. A special commentary is referred to the economic and industrial development of the former countries of Yugoslavia.

Уніфікація показників для контролю за різними формами монопольної влади

The paper demonstrates the necessity and possibility to unify the controlling indicators for different types of monopoly (monopolistic competition, oligopoly, natural monopoly) in order to increase efficiency of the monopoly control. Especially this concerns the complex types of monopoly from the point of view of its control, for example, oligopoly. The complexity of this type of monopoly control is associated with the actual inevitability of the appearance of tacit pricing coordination among the oligopoly participants. And the problem is not so much in admitting that the very fact of such a coordination is difficult to prove as in defining the harm it causes to the market and the entire economy. This paper shows the possibility to use the quantitative indexes of monopoly control proposed based on author’s CMI-model of macroeconomic dynamics, to apply these indexes for various types of monopoly. A distinctive feature of this model is the possibility to calculate the vector of “natural” prices for any sector (i.e., the prices that correspond to the state of perfect competition even if it is impossible to reach this state in the existing markets). And the comparison of the actual market price with the “natural” one allows us to control a monopoly using the price indexes alone. In turn, it allows us to perform a monopoly control at various hierarchical levels of the economic system (a firm, an economic sector and economy as a whole). Such a control enables us to calculate the degrees of the monopoly impact both on the entire economy, and on its various sectors. Quantitative values of these degrees can be used as evidence in antitrust litigations and for choice of corresponding instruments to “punish” the monopoly for such abuses. The paper reveals the mechanism of use of the proposed formulas for determination of the monopolistic power and degree of its impact on economy and various economic sectors for the cases of oligopoly and natural monopoly. Also, this paper demonstrates the mechanism of the influence of antimonopoly policy on the configuration of business cycle and on economic growth rate (when other policies are neutral). This opens up the possibility to combine the antitrust policy with the anticyclical and fiscal ones, because, under recession, increased monopolistic power in an individual sector may help the whole economy get out of the crisis.

Abstracción e idealización del homo economicus: la formación de la noción neoclásica de agente racional

The article presents a historical reconstruction of homo economicus. The aim is to show how the notion of agent went from being a holistic abstraction in Adam Smith to an idealizing abstraction where some features of the human being are simplified and exaggerated. To this end, the notion of agent in Smith is reconstructed and then it is shown how in the works of John Stuart Mill, the marginalist revolution, perfect competition, an increasingly idealized notion of agent was formed which, already in the expected utility model, ceased to represent human beings. The text shows how this growing idealization was linked to the process of mathematization of economics. Fi-nally, some epistemological advantages and disadvantages of the neoclassical notion of the rational agent are discussed.