Market Failure Research Articles

Fenomén morálního hazardu

Moral hazard arises in situation when subject is insulated from risk and therefore has a tendency to act less carefully. Moral hazard traditionally occurs in insurance markets, when the behaviour of the insured party changes in a way that raises costs for the insurer. Recently, moral hazard has increased in financial markets due to possibilities of lending institutions to push risk onto investors through loans securitization and use of financial derivatives spreading risks. Moral hazard of so called “too big to fail” lending institutions has a tendency to grow if governments are prepared to bailed them out in case of bad investments. The article treats moral hazard as a form of market failure, outlines its consequences and ways how it can be tackled.

Machine Data: Market and Analytics

Machine data (MD), that is, data generated by machines, are increasingly gaining importance, potentially surpassing the value of the extensively discussed personal data. We present a theoretical analysis of the MD market, addressing challenges such as data fragmentation, ambiguous property rights, and the public-good nature of MD. We consider machine users producing data and data aggregators providing MD analytics services (e.g., with digital twins for real-time simulation and optimization). By analyzing machine learning algorithms, we identify critical properties for the value of MD analytics, Scale, Scope, and Synergy. We leverage these properties to explore market scenarios, including anonymous and secret contracting, competition among MD producers, and multiple competing aggregators. We identify significant inefficiencies and market failures, highlighting the need for nuanced policy interventions. This paper was accepted by Joshua Gans, business strategy. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2023.00674 .

Africa's Emergent Tech Sector: Characteristics and Development Implications

This study examines the characteristics of Africa's tech sector and its implications for development. Using a database of technology firms in Africa, we show that start-ups are increasingly attracting funding across Africa, especially in underdeveloped sectors such as finance, retail, and transportation. We then illustrate that African start-ups’ digital technologies are often tailored to local contexts to attract, connect, and retain customers. Finally, we discuss transmission channels and review the existing evidence on the impact of digital technologies, particularly platforms, in Africa. We conclude that digital platforms hold significant development potential by addressing key market and government failures, as documented for the expansion of mobile money, but that the impact of other platforms, such as e-commerce, may be more ambiguous than expected. Consequently, there is an urgent need for more evidence on the impact of emerging digital technologies on African individuals, firms, and farms to guide effective policy responses.

Is There a High Rice Price Volatility in the Philippines: Insights from Bayesian Seasonal Autoregressive Distributed Lag (BARDL)

This paper analyzes the high volatility in rice prices in the Philippine market from October 1994 to April 2024 using a Bayesian seasonal autoregressive distributed lag (BARDL) model with three lags. Using a dataset of 160 observations, this model controls for lagged prices and seasonal effects that showed significant persistence in rice prices through the first lag, market corrections through the second lag, and minimal impacts from seasonality. Model diagnostics, including WAIC and LOOIC, indicate the model's goodness but show considerable unseen variability σ, and external factors seem to be prevailing. The findings thereby emphasize the failure of using market mechanisms to stabilize prices and the crucial need for strategic government interferences. It discusses market failure effects, the pendulum approach to economic policy, and welfare economics, urging for a balanced approach that combines market intervention with more supportive policies toward farmers to stabilize the rice market.

The Influence of External Drivers on Collaborative Innovation

Collaborative innovation has become a critical strategy for enterprises navigating the complexities of modern technological development. This study examines how external drivers can be adjusted to foster and enhance collaborative innovation. Foucusing on key factors such as government support, market competition, and intellectual property protection, the research highlights their impact on the success of collaborative innovation. Drawing on qualitative research and case analysis, this study identifies challenges such as market failure, resource allocation inefficiencies, and risks of knowledge leakage. The findings reveal that government policies, financial assistance, and fostering an innovation ecosystem significantly enhance collaborative efforts, while robust intellectual property protection bolsters confidence in knowledge sharing and commercialization. Additionally, the study highlights the importance of cultivating a collaborative culture within enterprises, supported by clear objectives, talent development, and ethical practices. This research offers actionable insights for optimizing external drivers to maximize the benefits of cross-organizational innovation, contributing to a more sustainable and efficient innovation ecosystem.

Full Competition and Innovation

Economic science is built on the basis of the concept of competition. Classical School economists have not defined this concept with precision. The “Neoclassic Revolution” defined the concept of perfect competition as an ideal combination of productive resources accessible to all permanently (optimal size). Within this framework, competition ensures that suppliers will cover demand by matching market prices to both average and marginal costs corresponding to the optimal size. Large and persistent differences in profit and wage rates, when interpreted from a perfect competition perspective, will always be considered a sign of the absence of competition. Only an alternative concept of competition can modify such an interpretation. In this context, the objective of this work was to develop an alternative concept of full competition, which is formally formulated, to foster a more sustainable environment for the coexistence of enterprises of different sizes. The full competition definition assumes that firms maximize long-term benefits (fixed-capital amortization period) by trying to ensure full use of productive capacity and achieving relative advantages through innovation instead of merely adjusting prices to maximize short-term benefits. This approach provides a different explanation for inequalities in profit and wage rates, from simple adjustment in prices (perfect competition) to the search for new and better opportunities through innovation (full competition). This could change the meaning and scope of economic policies, which are influenced by both Neoclassical and Keynesian approaches, when addressing the entrepreneurial challenges of sustainable development.

Generational Renewal of and Support for Agricultural Businesses to Achieve Vision 2030 in Namibia—A Focus on Social Protection

With six years left before realising Vision 2030 plans, Namibia finds itself with the current generation, that is, young people (youth) not interested/un-motivated to take up agriculture as a form of income-generating activity. Scientific literature is lacking in this area in Namibia, yet there is an argument that social protection (SP) programmes in agriculture are important to help increase agricultural output among the youth and in turn, sustainable food security and reduction in unemployment. Using the theory of market failure, this article sets out to identify challenges experienced by the youth in Namibia in participating in agriculture and discuss how coupling agriculture with SP could contribute to agricultural transformation. A qualitative methodological approach was employed as this approach helps with understanding how people think and act and, in this case, how the youth perceive the agricultural sector. It is found that a lack of infrastructure, income uncertainty, lack of farming protection and access to land deter the youth from participating in agriculture with some categorising farming as ‘not a job’. For agricultural transformation to come about, an enabling environment needs to be created to realise Vision 2030. This study contributes to the literature on proposed solutions in creating an enabling environment for those aspiring to go into agriculture as per the aspiration of the current policies and programmes.

Excessive Data Collection and (Mis)use of Data: A Comparative Law and Economics Study on the Chinese Didi Case and the German Facebook Case

Abstract The excessive data collection and (mis)use of data can result in the coexistence of two market failures—namely, market dominance and information asymmetry—which in turn interact with each other in digital markets and trigger simultaneous concerns about competition law and data protection law. This article establishes a law and economics framework to study the divergence in response to the concerns caused by excessive data collection and (mis)use of data by dominant technology undertakings in the European Union and China. The German competition authority, the Bundeskartellamt, found that Facebook, a dominant social network platform, abused its dominant position by excessively collecting and misusing user data without consent, whereas the Cyberspace Administration of China addressed similar concerns caused by Didi, a dominant ride-hailing undertaking, via data protection law. Based on the comparative analysis of the German Facebook case and the Chinese Didi case, a competition law approach to deal with excessive data collection and the (mis)use of data by a dominant technology undertaking results in high enforcement costs due to the prerequisites of market definition and dominance determination under abuse of dominance, while contributing to minimizing error costs, especially false negatives in the absence of data protection enforcement. In contrast, a data protection approach would be a cost-effective way to intervene in the market ex-ante by decreasing the likelihood of excessive collection and misuse of data, reducing the exclusionary and/or exploitative effects of competition and lowering the market entry barrier that benefits from the collection and processing of significant amounts of data.

The synergistic effects of microcredit access and agricultural technology adoption on maize farmer’s income in Kenya

Addressing global food security demands urgent improvement in agricultural productivity, particularly in developing economies where market imperfections are perverse and resource constraints prevail. While microcredit is widely acknowledged as a tool for economic empowerment, its role in facilitating agricultural technology adoption and improving agricultural incomes remains underexplored. This study examines the synergistic effects of microcredit access and agricultural technology adoption on the incomes of maize farmers in Kenya. Using household-level data, we employ an endogenous switching regression framework to control possible endogeneity in access to microcredit. Our findings shows that microcredit access positively influences the adoption of advanced agricultural technologies. Key determinants, including marital status, use of fertilizer application, access to extension services, and cooperative membership, are identified as significant determinants of microcredit access. Notably, the Average Treatment Effect on the Treated (ATT) indicates a 40.52% increase in income among farmers who access microcredit, mainly driven by the timely adoption of high-quality seeds, improved agricultural technologies, and enhanced inputs. These results highlight microcredit’s role in promoting allocative efficiency and enhancing Total Factor Productivity (TFP) within agricultural systems. Robustness checks, including propensity score matching and sensitivity analyses, corroborate these findings. The study recommends the implementation of targeted financial policies and educational initiatives meant to promote credit access, encourage savings, and enhancing financial literacy, particularly for credit-constrained households. Integrating these measures could strengthen rural financial markets and drive sustainable agricultural development across the regions.

Analysis of the Impact of Property Tax on House Prices and Market Stability

The real estate market is on the cusp of changes in the world economy, affecting the lives of citizens across the globe. As an important part of the real estate market, the real estate tax is levied on the property owned by citizens or the rental, which has caused some related social problems. This paper analyzes the two earliest places of real estate tax implementation, Shanghai and Chongqing, studies the impact of real estate tax on housing prices, market structure and consumer behavior, and gives some expectations for the future of real estate development. In the research, this paper finds that the current real estate tax is mainly levied on new houses and second-hand houses in big cities, and the market structure continues to fluctuate in price due to "real estate speculation", resulting in the failure of the real estate market to flourish, and consumers and sellers are relatively cautious. First, property taxes directly increase the price of housing in the real estate market, because the cost of maintaining a home increases, and second, more people who cannot afford the high cost of housing choose to rent, thus driving up the price of rent. As far as the market structure is concerned, the reverse price changes of the primary housing market and the secondary housing market aggravate the floating demand and instability of the market. For consumers, the real estate tax will affect their consumption concept, shift from real estate investment to other industrial investment.

Investigative journalism: Market failures and government intervention through public broadcasters

Investigative journalism: Market failures and government intervention through public broadcasters

Blockchain-Assisted Generation Rescheduling in Imperfect Market Environments

Blockchain-Assisted Generation Rescheduling in Imperfect Market Environments

The United States veterinary workforce dilemma: are we asking the right questions?

This article explores the ongoing debate about whether there is a workforce shortage in veterinary medicine. Despite numerous discussions, no consensus has been reached on whether the demand for veterinarians and their teams exceeds supply. The authors argue that current public discussions fail to address the core issues. The article explores the workforce issue from an economic perspective and provides a perspective on the way forward. Key aspects covered include recognizing the distinction between needs and wants, collecting better data, employing rigorous empirical analysis, differentiating market failures from high prices, and fostering cooperation.

The Importance of Liberal Arts Education and Market Failure

Despite the numerous uncertainties, Korean universities are prioritizing early specialization in education rather than focusing on the aim of the college education. The purpose of the study is to demonstrate that the return to education rises in an unstable environment, and that this education premium is closely related to the liberal arts education. Additionally, it provides a brief overview of the history of liberal arts education in Korea and assesses the current status and challenges. Finally, it proposes measures for improvement.</br>Although the aim of liberal education extends beyond merely improving labor market outcomes, the liberal education indeed contributes to better performance in the labor market. The return to college education is high worldwide and it tends to increase as environments, including technology, change rapidly. This is because individuals with more schooling are better equipped to quickly capture the economic rents that arise from the disequilibria. This ability is cultivated more effectively through the liberal education than through the specialized training. The rise of the United States as a global superpower by focusing on the general education and numerous other empirical studies supports this perspective.</br>The “5.31 Education Reform” in Korea, however, led to a contraction of basic academic disciplines, a decline in the academic quality of liberal arts education, and the erosion of the curriculum's universality. These issues stem primarily from the inherent characteristics of the education market, which has the characteristics of public good as well as the externality. In addition, misperception on the value of liberal arts education have exacerbated the situation. To address the market failure, it is crucial to rectify the perception of liberal arts education among educators. Moreover, high academic quality of liberal education must be preserved, and the universality of the liberal education curriculum should be maintained.

Corporate Governance as an Area of Innovation: Challenges and Prospects in Environmental Policy

The research relevance is determined by the need to study the role of corporate governance in promoting the innovative development of enterprises to promote environmental protection. The study aims to analyse the relationship between corporate governance and innovation processes, identify factors influencing the success of innovation initiatives within companies, and propose strategies for enhancing innovation management. Utilising synthesis, system analysis, and modelling methods, the study highlights that effective corporate governance for sustainability requires integrating environmental goals into strategic planning, fostering stakeholder collaboration, and implementing advanced risk assessment tools. The findings indicate that companies recognising the strategic significance of innovation and embedding it within their business strategies achieve substantial advantages in attaining strategic success. Businesses that actively innovate should be prepared to manage the risks associated with market volatility, technological change, and failure of innovation projects. Companies that cultivate an environment of open idea exchange, teamwork and collaboration are more likely to innovate and implement solutions efficiently. It is important to integrate the risk assessment and control system into the corporate structure, which ensures the stability and efficiency of the innovation process. The value of the obtained results lies in the identification of key aspects of innovation management and the formation of practical recommendations for integrating these insights into corporate strategy to enhance the effectiveness of corporate governance.

The Growth Contribution of China’s Regional Coordinated Development Strategy—On the Dispute of Regional Policy Paths

Abstract Balancing macroeconomic growth with regional equilibrium development is essential for China’s pursuit of the modernization through regional coordinated development. Taking a macroeconomic output perspective and employing a counterfactual framework, this paper evaluates the economic growth effects of China’s “place-based” and “people-based” regional policies, and explores the future implementation effects and optimal combinations of these policies under different market environments. Given that “people-based” policy cannot address market failures in spatial dimensions, the essence of the academic debate over regional policy paths lies in different understandings of the relationship between government and markets.

Two Traditions in the Conceptualisation of Competition

This article adopts a history of economic thought approach in examining the conceptualisation of competition and its development and role in different theoretical systems. Taking the nonlinear view of knowledge, this article identifies two distinct and different theoretical systems—classical political economy and neoclassical economics (brought through the marginalist revolution in the late 19th century). This article argues that classical political economy had a notion of competition as a dynamic process irrespective of the market structure (number of participants in the market). For classical economists, competition was conceptualised as the perfect mobility of resources, establishing a tendency towards uniform prices or rates of return to commodities, assets and labour that are identical in all economically relevant respects. Competition was operationalised through the theoretical idea of natural prices; in fact, competition is the method of abstraction employed by classical economists to study basic economic processes. Meanwhile, in neoclassical economics, the concept of perfect competition depends on the number of participants in the market, with imperfections introduced only as deviations from the idealised benchmark.

Global datasets of geospatial-AI-resolved energy consumers including climate-driven energy demands, geographical and socioeconomic realities for a transition reset

Traditional models deliberately simplify millions of consumers into a single, homogeneous, representative agent with perfect market knowledge and rational expectations, limiting their capacity to capture real-world complexities. To address this limitation in mainstream models, this article provides global datasets to parametrise energy consumers within climate-energy-economy models considering climate-driven energy demand, socioeconomic and demographic factors. The datasets emerge from applying geospatial artificial intelligence, machine learning and big data analytics on a range of geospatial parameters at 1 km2 resolution. Twenty distinctive energy consumers are defined using three heterogeneous geospatial features, eight diverse and two evolving parameters. This parametrisation of consumers strengthens the applicability of climate-energy-economy models to guide effective, equitable and just climate policy design. This comprehensive analysis of complex interactions between climate, socioeconomic and demographic factors supports more realistic decision-making for a sustainable transition reset. This research emphasises the geospatial distribution of energy consumers to enhance technoeconomic assessment, understanding consumer dynamics for consumer-led resource allocation and informed policy implementation. These datasets can be used in climate-energy-economy models to parametrise consumers beyond traditional approaches.

Dividend Policy And Stock Price: Testing The Miller-Modigliani Dividen Irrelevant Theory LQ45 In Indonesia

The dividend irrelevance theory proposed by Miller and Modigliani suggests that dividend policy does not affect firm value in a perfect market with no transaction costs and taxes. However, this theory has been widely debated in empirical research, with mixed results across different stock markets. This article aims to test the validity of the dividend irrelevance theory in Indonesia by examining companies listed on the LQ45 index of the Indonesia Stock Exchange (IDX) for the period 2019-2023. The methodology includes analyzing stock prices before and after dividend announcements, considering the impact of transaction costs and taxes. The findings indicate that the dividend irrelevance theory does not fully apply in Indonesia, as significant differences were observed between stock prices before and after dividend announcements. This suggests that dividend policy remains relevant for investors in the Indonesian stock market.

Confusion in the marketplace: a study of institutional isomorphism and organisational identity in South Korea

ABSTRACT The inherent features of universities and junior colleges in Korea may be non-normative based on institution type, suggesting the blurring of organisational identities. This raises concern amid Korea’s increasing popularity as an international education destination. There might be confusion in the global marketplace from the perspective of students who interact with and learn about the identities of Korean institutions. We are already alarmed by a peculiar development in some international students unintentionally enrolling at junior colleges in pursuit of traditional university degrees and experiences. We employ a mixed-methods analysis combining a national statistical overview and the content analysis of institutional websites to interrogate the organisational identities of Korea’s universities and colleges. Institutional differences, which exist, are masked by the orchestration of culturally mediated messages signalling institutional activities and social roles that are increasingly blurred. We offer thoughts on what institutional isomorphism and homogenised identity representations indicate about society and national policy, in Korea and beyond. We conclude with a discussion of the market utilities and challenges linked to institutional sameness. Institutional isomorphism is not necessarily undesirable, but may be used a policy lever to correct market failures.