Market Failure Research Articles

Government policy innovation in spurring nascent entrepreneurship during pandemic

In mixed economic systems, government policies are essential for addressing market failures and economic challenges. The COVID-19 pandemic has had notable impacts on nascent entrepreneurship. To assess government policy effects on nascent enterprise growth, we analyzed data from 39 Asia-Pacific countries using a Panel Quantile Regression via Moments (MM-QR) approach, covering 2006–2020. Our findings indicate that nascent enterprises generally respond positively to policies promoting entrepreneurship, but that special government measures during the pandemic had an inconclusive impact. Our analysis identifies credit market deepening as a crucial factor for promoting nascent enterprises. Thus, policymakers should focus on expanding credit market access to support nascent enterprise growth. This study offers key policy insights for promoting entrepreneurship in mixed economic systems.

THE PRIORITY DIRECTION OF ECONOMIC DEVELOPMENT IN THE SPHERE OF INNOVATION THE FACTOR OF PUBLIC-PRIVATE SECTOR COOPERATION

Such a vital trend for the economic development of innovation, as the above-defined cooperation between the public and the private sectors, mere fact becomes possible only due to such a symbiosis. The symbiosis of two fundamentally oppositional structures creates a context in which a unique ecosystem, propelling innovation and economic improvement, can be facilitated. On the one hand, the public sector brings an incredible insight into regulation capacities and significant funding utilities. The issue that arises in this partnership is a market failure when none of the sectors can encourage technological development on their own. A partnership, however, does help to establish innovation hubs, encourage research and development, and facilitate commercialization. Governments through adjusting public policies to the private sector and indulging in joint ventures overcome market failure and stimulate innovation. Such partnerships also beneficial in addressing societal problems via innovation, thus, at the long-run level, private and public unions become a necessity.

The small open economy in a generalized gravity model

To provide sharp answers to basic questions in international trade, a standard approach is to focus on a small open economy (SOE). Whereas the classic tradition is to define a SOE as an economy that takes world prices as given, in the new trade literature it is defined instead as one that takes foreign-good prices and export demand schedules as given. We develop a gravity model that nests all its standard microfoundations and show how to take the limit so that an economy that becomes infinitesimally small behaves like a SOE. We then derive comparative statics and optimal policy for the SOE. Ignoring standard tax indeterminacies, optimal policy is characterized by export taxes and import tariffs equal to the (inverse) foreign demand and supply elasticities, respectively, and employment subsidies determined by the scale elasticity (under perfect competition) or markups (under monopolistic competition).

The Impact of Perfect Competition Market Structure on Firm Performance in the Coffee Culinary Industry

The Impact of Perfect Competition Market Structure on Firm Performance in the Coffee Culinary Industry

Application of Econometrics in Agricultural Production

This Special Issue on “Applications of Econometrics in Agricultural Production” has aimed to rebuild and extend the approach to agricultural production analysis by including econometric methods for (a) developing a new paradigm for agricultural production analysis that acknowledges and models the relevance of the combined economic and agronomic aspects of the production processes; (b) defining output and input demand and supply in agricultural production from a technical perspective, with the use of production function/or production frontier models; and (c) understanding agricultural market exchange and market distortions and failures from a quantitative perspective [...]

Adoption of Sustainable Dairy Management Practices and its Effect on Farm Income: A Case of Dairy Farmers in Rubaya Sub-County, Mbarara District

Sustainable dairy management (SDM) practices aim to minimize environmental impact, promote animal welfare, ensure economic viability, and support social responsibility throughout the dairy production chain. The SDM practices that could improve sustainability of dairy farming systems in Uganda include milk management, animal health, feeding and breeding practices. Despite the numerous advantages that scientific literature reports for these dairy management practices, they are not always adopted by farmers because of various factors. The objectives of this study were to examine farmers’ adoption decisions towards Sustainable Diary Management (SDM) practices, as well as the economic impact of this adoption among dairy farmers in Rubaya Subcounty. The cross-sectional research design was applied to collect both quantitative and qualitative data using a semi-structured questionnaire. Data were collected using a household survey of 160 randomly selected respondents, from different villages within the study area. R Software Version 4.4.0 was used for data analysis. The results reveal that most of the SDM practices were adopted by over 50% of the dairy farmers. Only Artificial insemination, drying off animals, conservation fodder and concentrate feeding practices were adopted by less than 50% of the dairy farmers. The Multivariate logistic regression model results show that the adoption of SDM practices is significantly associated with varied demographic (Gender, age, household size); socio-economic (land size and household income); and institutional factors (access to agricultural credit, access to extension services, and membership to a farmer association). The study found out that adoption of SDM practices increased their farm income by UGX. 2,930,429/=, highly significant at 5% (p=0.02). The study recognizes two main pathways to increase the adoption of SDM practices: i) utilizing farmers’ knowledge and information sharing platforms; and addressing broader market and institutional failures

Capital structure and business failure: The collapse of Canada’s Dome Petroleum

In popular lore, the failure of Canada’s once-biggest company, Dome Petroleum, was caused by the interventionist policies of the federal government or its misadventures drilling for oil in the Arctic. But these factors acted in varied ways on the company. Rather, corporate finance theories offer more insight into the dynamics that led to Dome’s takeover by the American oil major Amoco in 1988. Dome was unique in its unwillingness to issue new share capital during its growth phase and instead relied on easy debt financing. This in turn was a result of both insider preferences as well as capital market imperfections. The transformation of capital structure from a background into a critical weakness, this paper argues, making use of newly available data and company archives, provides a more convincing explanation of Dome’s failure than other factors. The relevance of capital structure highlights the enduring analytic utility of the Modigliani-Miller theorem of capital structure irrelevance.

Fiscal decentralization and the transformation of regional energy structures in China: Spatial spillover effects and the mediating role of technological innovation

The transformation of regional energy structures plays a pivotal role in enhancing ecological quality and advancing national green development efficiency. However, this transformation is characterized by dual externalities, necessitating governmental intervention to rectify market failures. Therefore, this study focuses on the critical influence and mechanisms through which local governments affect regional energy structure transformation, particularly within the context of China's unique fiscal decentralization. This study explores the impact of fiscal decentralization on the transformation of China's regional energy structures and its spatial correlations. Employing a bidirectional fixed-effect model and a spatial Durbin model, we analyze Chinese provincial panel data from 2002 to 2021 to explore the effects of fiscal decentralization on regional energy structure transformation and its spatial spillover. Findings reveal that fiscal decentralization significantly enhances the efficiency of regional energy structure transformation, with an effect coefficient of 0.127. Additionally, the fiscal decentralization mechanism positively influences spatial spillover effects on regional energy transformation, with these effects becoming more pronounced alongside higher degrees of economic agglomeration. Moreover, local governments are found to foster regional scientific and technological innovation, thereby facilitating adjustments in the regional industrial structure and promoting energy structure transformation. The intermediary effect test highlights the role of local governments in promoting scientific and technological advancements that drive industrial restructuring and energy transformation. The study recommends for a long-term strategy to balance central and local financial development, aiming to enhance the efficiency of regional energy structure transformation. These findings offer a theoretical foundation and policy recommendations for optimizing and transforming energy structures in pursuit of China's green and high-quality development goals. These findings offer globally relevant insights into leveraging fiscal decentralization for energy structure transformation, supporting sustainable development and green growth worldwide.

Modern Industrial Policy and the World Trade Organization

This article surveys the economics of industrial policy as it relates to the World Trade Organization (WTO). Motivated by concern that the modern use of industrial policy is emerging in ways that threaten cooperation in the international trading system, the article begins with the basic historical economic framework for tying industrial policy to underlying market failures. It then introduces the dominant economic understanding of the role played by the WTO, examining the WTO's rules on subsidies (and thus industrial policy), the unease with the evolution of the trading system's subsidy rules, gaps in knowledge, and important data and measurement shortcomings. The main part of the article examines four areas in which modern industrial policy operates differently and has become especially important for the trading system: China, supply chain resilience, supply chain responsiveness, and climate change. The article identifies the evidence to date, open questions, and potential paths forward for economic research to help inform policymakers’ efforts to restore international economic cooperation in trade and industrial policy.

Solving a bilevel strategic offering model for a generation company in a hydrothermal energy market: A new convexification approach

This paper proposes a bilevel strategic offering (SO) model suitable for a strategic company (SC) that operates in a hydro-dominated day-ahead energy market. The upper-level model of the proposed SO model maximizes the SC’s profits, while the lower-level model embodies a hydrothermal market clearing (MC). This MC incorporates detailed hydro and thermal constraints for units of both the SC and non-strategic companies (NSC), in addition to the network constraints. The proposed solution approach entails replacing the lower-level model with its corresponding primal and dual constraints, along with a strong duality equality constraint. This leads to a non-convex mathematical programming with equilibrium constraints (MPEC) model, which is then reformulated to feature only a single bilinear term in its structure. Finally, the recast MPEC model is convexified around an initial point and solved iteratively until a convergence criteria is achieved. The model and solution approach proposed are evaluated on an adapted version of the IEEE 24-bus system, exploring scenarios where the SC acts strategically or non-strategically (perfect competition).

Price dispersion in dynamic competition

In product markets, substantial price dispersion exists for transactions of physically identical goods. Moreover, in these markets, incumbent firms sell at higher prices than entrants. This paper presents a theory of price formation under dynamic competition that explains these facts by assuming both that consumers have imperfect access to firms and that their degree of access depends on each firm’s sales history. The model has a unique equilibrium that features randomized pricing strategies, with incumbents always posting higher prices than entrants. For a fixed underlying environment, the equilibrium converges to a stationary equilibrium over time. As firms’ entry and exit rates approach zero, this stationary equilibrium converges to perfect competition.

Does Dividend Payment Generate a Market Signal to Investors?

In perfect market theory, the information will provide signals that are reflected in stock price movements. In the context of dividend payments, these theories are still debatable. Dividend payments will please shareholders as prosperity increases. But not sharing profits can also give a positive signal. The purpose of this study is to see if dividend payment able to give a positive signal on rising stock prices. The research will also look at whether profitability, leverage, asset growth, and interest rates also signal rising stock prices. Logistic regression analysis is applied to answer the research objectives. Purposive sampling is based on retail companies that specialize in the category of supermarkets and minimarkets that have been listed on the Indonesia Stock Exchange for the period 2013 to 2022. The results of this research conclude that dividend payments give a positive signal on rising stock prices. The chance of a stock price increase is 4.7 times compared to a company that does not pay dividends. Interest rates also inform investors to be careful in making investment decisions. Investors are only willing to bear additional risk if the expected profit is above the risk premium. Information on the company's financial performance such as profitability, leverage, and asset growth is not significant on the increase in stock price. This means that it does not provide signals for investors.

Do early adopters raise barriers to the commercial take-up of strategic high-technology products?

ABSTRACT The objective of this research is to investigate whether the behaviors and preferences of early adopters can potentially hinder the widespread proliferation of strategic high-technology industrial products. Through an extensive analysis of data collected from 1285 communication satellites, our findings reveal a significant pattern: when early adopters demonstrate a high demand for product diversity and elevated levels of innovation, this tends to delay the diffusion of these technologies to the mainstream commercial adopters. Early adopters undeniably play a pivotal role in directing the development pathways of strategic industries; however, their insistence on high innovation and diversity creates technological barriers. These barriers, in turn, slow down the mass adoption by commercial entities, which rely on more stable and universally accepted technologies. Our research enriches the existing body of diffusion literature by offering a fresh perspective, focusing on the dynamics of adopter orientation as opposed to the traditional producer-centric view. The results from our study highlight the urgent need for the implementation of targeted policy interventions and strategies aimed at fostering more equitable and widespread diffusion processes. This would ensure that the benefits of innovation are more evenly distributed across a broader range of user segments. Moreover, our findings suggest that innovation policies need to address systemic failures within the innovation ecosystem, such as the lack of a dominant design which can further facilitate diffusion. This insight is particularly beneficial for policy-makers, providing them with critical information to determine the optimal timing for transitioning from mission-oriented policies that are aimed at establishing new markets, to product diffusion policies focused on rectifying market failures.

The Education and Research in The Quadruple Helix and The Regional Innovation Prospects

Governments endorse R&D promotion policies to correct for potential market failure that is caused by R&D’s positive externalities and the discrepancies between the social and private rates of return to R&D. The logical connection of the Quadruple-Helix model with the characteristics of the sectoral specialisation of the economies of the regions in terms of their innovation potential and priority areas for the development of scientific research and innovation will be investigated in this chapter. A special focus will be on the digitalisation acting as a push factor for the processes. The advantages of this approach are with the web-based services and with the established Centre of Excellence could assist SMEs from limited area, but also with the web-based services will grant the SME a number of scenarios they could follow or adjust to their specific needs.

Local understanding of community disaster resilience in rural Cambodia: exercises of localism and lessons learned from villagers’ workshops

ABSTRACT Community disaster resilience has become a key concept in the field of climate change and development, but it often remains a third party’s terms (e.g. donors’ or researchers’) rather than being understood from local perspectives. In an attempt to understand it in local terms, and to exercise localism in seeking the next steps of a climate change adaptation project, this study used focal group interviews organized in a manner of local workshops in Battambang, Cambodia. Villagers were encouraged to speak about what they had (strengths and assets) and saw opportunities (although many were expected to come externally). Addressing threats, they pointed out some broader issues, such as market failure and structural power issues, such as crop pricing, which were never prioritized in the initial project, partly because of limited local participation in agenda setting. The strength of this research is its action-oriented data collection technique, which produced and shared findings that are meaningful to the community for possible interventions. The findings point to a holistic approach of (climate-driven disaster-) resilient development, which requires addressing governance and market issues. By engaging community members, we also hope these exercises have contributed to increasing their sense of ownership or to ‘agency facilitation’.

The failure mode and effect analysis of Islamic banking product marketing in Indonesia

Purpose This study aims to use a risk management approach to analyze the factors influencing the marketing failure of Islamic banking products in Indonesia. Design/methodology/approach Data were collected from respondents to be involved in the risk assessment of failure based on the criteria of severity score, likelihood of occurrence and detection ability of employees. The dominant factors were grouped into the number of new customers and transaction value categories. The failure mode and effect analysis (FMEA) method was used to identify the highest risk dominant factors. Findings The study results show critical factors and prioritized for immediate improvement. The number of new customers can be identified based on the following factors: occupation of prospective customers; income level of prospective customers; the lifestyle of the prospective customer. Transaction value can be identified based on the following factors: total balance; the level of convenience in transactions; turnover of funds; profitability; and risk management. Practical implications The Islamic banking industry in Indonesia needs to consider the importance of suitability: target market with the products offered, considering the income level of customers with suitable products, the level of profit sharing expected by consumers, improving customer education about Islamic banking products, the capabilities of financing staff and staff capabilities on risk management in Islamic banking products and services. Originality/value To the best of the author’s knowledge, this research is the first to apply FMEA in analysing marketing failures of Islamic banking products and services.

Therapeutic Strategies to Combat Increasing Rates of Multidrug Resistant Pathogens.

The emergence of antimicrobic-resistant infectious pathogens and the consequent rising in the incidence and prevalence of demises caused by or associated to infections which are not sensitive to drug treatments is one of today's major global health challenges. Antimicrobial resistance (AMR) can bring to therapeutic failure, infection's persistence and risk of serious illness, in particular in vulnerable populations such as the elderly, patients with neoplastic diseases or the immunocompromised. It is assessed that AMR will induce until 10 million deaths per year by 2050, becoming the leading cause of disease-related deaths. The World Health Organisation (WHO) and the United Nations General Assembly urgently call for new measures to combat the phenomenon. Research and development of new antimicrobial agents has decreased due to market failure. However, promising results are coming from new alternative therapeutic strategies such as monoclonal antibodies, microbiome modulators, nanomaterial-based therapeutics, vaccines, and phages. This narrative review aimed to analyse the benefits and weaknesses of alternative therapeutic strategies to antibiotics which treat multidrug-resistant bacterial infections.

Challenges of Smallholder Farmers in Sub-Saharan Africa: A Perspective from Roger Thurow's, The Last Hunger Season

Small holder farmers are the small-scale farmers who own the land from one hectare to less than ten hectares. These farmers often depend on the family labour for farming activities, and a significant portion of their production is used to support their own livelihoods. Africa is a region where eighty percent of the farmland is cultivated and food is produced by small holders, yet they face multiple obstacles in sustaining their routine. The death rate of children is increasing due to poverty and malnutrition. Major challenges include the lack of sustainable agricultural practices, insufficient planting techniques, inadequate access to fertilizers and markets, water scarcity, and the impacts of climate change. The author aims to raise awareness about global hunger and the importance of long-term viability and economic development. He delves into the lives of small farmers, revealing the complexities of market failures, food insecurity, and the inability to access modern agricultural tools. The author also highlights the efforts of organizations and initiatives, such as One Acre Fund, which provide farmers with high-quality seeds and fertilizers on credit, and require them to attend local farming classes. This paper focuses on the challenges faced by smallholder farmers in Africa, as depicted by Roger Thurow in "The Last Hunger Season”. The objective of the study is to emphasize the need for awareness and policy interventions, including family planning and literacy programs, to empower rural communities, achieve food security and improve economic resilience in the face of population growth and agricultural challenges.

Markets and Public Goods: Integrity, Trust, and Climate Change

Public goods are an anomaly in neoclassical economics, a form of ‘market failure’. They exist outside the efficient and equitable optimality of market exchange. It can be shown however that competitive markets are only efficient in short product cycles. Long-term objectives require social support. Corruption arises from the consequent private public interaction. Integrity, the absence of corruption, is a public good. Corruption has risen since the 1980s with privatization and outsourcing. How did European governments become honest in the first place? In the century after the 1770s, they moved from regarding public office as a form of private property to a conception of serving the public good. This integrity revolution was facilitated by Weberian bureaucracies, selected by academic merit and committed to impartiality by long-term incentives. The neoliberal revolution of the 1980s regarded bureaucracies as obstructive and slow. It admired the business corporation with its opaque procedures and charismatic leadership. Concurrently economics moved from neoclassical harmony theory to an asymmetric information model of ‘opportunism with guile’, providing doctrinal legitimacy for corruption. Corporate advertising is deliberately deceptive, and undermines the public good of trustworthiness. Digital platforms, powered by advertising, have subverted public discourse. Misinformation and disinformation have become prime risk factors for current societies. The practical operation of markets undermines the public goods of integrity and trustworthiness. The public good of a habitable climate cannot be achieved by market methods. For long-term payoffs, ‘free markets’ are a harmful delusion, inefficient, corrupt, impossible to achieve, and not sustainable.

Financial literacy and borrower discouragement

This study provides first empirical evidence on the impact of entrepreneurs’ financial literacy on borrower discouragement. Using novel survey data on Italian micro-enterprises, we find that less financially knowledgeable entrepreneurs are more likely to be discouraged from applying for new financing, especially due to higher application costs. Our results are robust to several sensitivity checks, including accounting for potential endogeneity. Furthermore, we show that the observed self-rationing mechanism is rather inefficient, suggesting that financial literacy might play a key role in reducing credit market imperfections.