Potential Market Failures Research Articles

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.

The Interface Between Patents and Regulatory Exclusivities and the View on the New EU Proposals Concerning Patent Compulsory Licensing and Regulatory Exclusivities

Abstract Exclusivity rights such as patents have gained special attention in the post-pandemic period. Patents are intended to be a tool to prevent potential market failure in intangible goods and encourage investment in innovation. At the same time, recently they have been accused of blocking access to COVID-19 vaccines and have even fuelled public debate on the introduction of various measures to limit the exclusivity rights arising from the grant of a patent. However, patents are not the only exclusivity available to (bio)pharmaceuticals. Regulatory exclusivities, though less well-known to broader society, are no less important than patents and no less relied on by the pharmaceutical industry. A fortiori, de lege lata regulatory exclusivities have no exceptions, which means they are more robust than patents and can potentially provide even stronger protection than that afforded by patents. This contribution provides a comparative view on patents and the less explored ‘8+2+1’ regulatory exclusivities, outlining common and distinctive features and the interaction between the two regimes. Some preliminary reflections are made on potential legislative adjustments, without which the much-debated compulsory licensing may prove to be of little use. Finally, insights are provided into the European Commission’s proposals of spring 2023 for general pharmaceutical legislation and compulsory licensing. Some preliminary insights into the proposed changes to the regulatory exclusivity system are also provided. Special attention is paid to the proposal aimed to reach compatibility between regulatory exclusivities and compulsory licensing.

Potential market failures in the Portuguese wine industry

The wine industry is characterized by a monopolistic competition market structure, with high product differentiation. In this study, based on the predictions of microeconomic theory as applied to market equilibrium and market failure, the statistical data on production, trade and domestic consumption, as well as the governance model adopted, were analyzed. The main goal was to examine potential market failures in the Portuguese wine industry, concentrating mainly on those related to information asymmetry and transaction costs. The analysis shows that while Portugal constitutes a significant source of low-priced wines, both for its home consumers as well as for those abroad, most wines lack reputation and therefore have little potential to transfer value to upstream economic agents, and almost no possibility of increasing consumers’ willingness to pay. Though there is detailed information on production, exports and trade, limited information exists on domestic consumption. Given the small dimension of some wine regions, the governance model adopted does not benefit from scale economies and requires higher transaction costs.

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.

Combining mandatory coal power phaseout and emissions trading in China's power sector

China has launched its nationwide emissions trading system (ETS) in the power sector. Meanwhile, a mandatory phaseout policy for coal power is likely to be co-existing with China's nationwide ETS. These co-existing policies would interact with each other and, in certain cases, lead to unintended consequences, such as a policy overlap. This study aims to assess the impact of such combined policy in China by developing a multi-regional dynamic Computable General Equilibrium (CGE) model with specified modules of mandatory coal power phaseout and ETS. The results show that the impact of such policy combination depends on the type of ETS. Under China's current rate-based ETS, the co-existence of mandatory coal power phaseout would enhance the policy stringency and increase the coal power generation losses, carbon emission and intensity reductions. In contrast, the mass-based ETS with the combination of mandatory coal power phaseout would lead to a policy overlap and potential market failure in the ETS. The complementary provincial impacts and permit scarcity are two factors that could explain the combination mechanism of these policies. Furthermore, permit cancellation in a mass-based ETS would prevent the potential market failure but may lead to greater economic losses.

Is There a Proper Scope for Markets?

Abstract Debra Satz's brilliant essay highlights that it is insufficient to study markets in terms of efficiency and potential market failures, as they have deep effects on people and societies. This line of thought could inspire the project of building a general theory of social interactions, in which the specific properties of market transactions would be identified, and their influence on society at large, depending on the surrounding institutions and social structure, could be understood. In this brief essay, personal care provides an example of the complex ramifications of different arrangements for social interactions.

Does Rice Quality Matter? Understanding Consumer Preferences for Rice in Nigeria

AbstractRice is a staple crop in Nigeria. Even with a push to increase domestic production, little is known about the functionality of Nigeria’s open bag markets and the preferences of consumers for specific rice attributes. Our study uses a hedonic price model to identify quality attribute preferences of consumers and potential market failures. Our results indicate that Nigerian consumers prefer rice with homogenous long slender kernels and a low presence of broken rice and are indifferent to chalkiness. The findings are useful as they can inform future strategies for rice breeders, domestic policy makers, and rice exporters.

Information Frictions in Real Estate Markets: Recent Evidence and Issues.

This article reviews research on the economics of information in real estate. It covers equity investment in private and public markets and intermediation by brokers. The review shows how, by examining the nature and extent of information frictions in these important markets, research has improved our understanding of potential market failures and corrections which can improve market functioning.

The Future of Wild-Caught Fisheries: Expanding the Scope of Management

In recent years, the approach to wild-caught fisheries management has expanded beyond traditional single-fishery management. This article examines potential market failures within the fisheries sector that may arise because of a failure to account for key features of wild-caught fisheries and that can be addressed by an expanded scope. These market failures include multiple species caught together, multiple fisheries targeting the same stock, and other ecological and socioeconomic interconnections within ecosystems. We also examine market failures that may arise when external factors such as climate change and species invasions are not considered in fisheries management policy or if policies do not consider multisector use of seascapes, linkages between water pollution and fisheries, and market failures that cut across fisheries and nonfishery sectors and involve the underprovision of publicly available data and a lack of information sharing along the supply chain. We find that policies that address these market failures typically have distributional effects; that is, there will be winners and losers, even if aggregate efficiency increases. We conclude that research and policy design need to explicitly consider equity-efficiency trade-offs when seeking to address market failures, and we propose policy and research priorities that support the sustainability of wild-caught seafood.

Clinical negligence cases in the English NHS: uncertainty in evidence as a driver of settlement costs and societal outcomes.

The cost of clinical negligence claims continues to rise, despite efforts to reduce this now ageing burden to the National Health Service (NHS) in England. From a welfarist perspective, reforms are needed to reduce avoidable harm to patients and to settle claims fairly for both claimants and society. Uncertainty in the estimation of quanta of damages, better known as financial settlements, is an important yet poorly characterised driver of societal outcomes. This reflects wider limitations to evidence informing clinical negligence policy, which has been discussed in recent literature. There is an acute need for practicable, evidence-based solutions that address clinical negligence issues, and these should complement long-standing efforts to improve patient safety. Using 15 claim cases from one NHS Trust between 2004 and 2016, the quality of evidence informing claims was appraised using methods from evidence-based medicine. Most of the evidence informing clinical negligence claims was found to be the lowest quality possible (expert opinion). The extent to which the quality of evidence represents a normative deviance from scientific standards is discussed. To address concerns about the level of uncertainty involved in deriving quanta, we provide five recommendations for medico-legal stakeholders that are designed to reduce avoidable bias and correct potential market failures.

Consumer Welfare of Country-of-Origin Labelling and Traceability Policies

Traceability regulations are a way to protect consumers by forcing firms to identify and track products step-by-step through all stages of production, processing, and distribution. Traceability is often used in conjunction with country-of-origin labelling where products explicitly identify where production takes place. However, such country-of-origin regulations can conflict with WTO provisions. This paper analyzes the impact on consumer welfare of traceability and country-of-origin in an international trading regime to assess whether such regulations actually improve consumer welfare. The paper constructs a theoretical model that highlights the potential market failure that arises from traceability. The paper then introduces a simple international trade regime to identify impacts on consumer surplus. The paper compares outcomes with, and without, traceability and country-of-origin regulations. Given the inherent free-rider problem, the paper shows that, as long as costs associated with traceability are low enough, mandatory regulations are welfare improving. Free trade, in the absence of foreign traceability, can lower consumer welfare so provides a rationale for country-of-origin rules. However, mandatory country-of-origin rules need not be welfare enhancing. We show that country-of-origin rules are similar to import barriers and so are third-best solutions. The better solution is international adoption and recognition of traceability rules which would make country-of-origin rules moot.

PBI33 Investigating Potential Market Failure with Curative Cell and GENE Therapies

PBI33 Investigating Potential Market Failure with Curative Cell and GENE Therapies

Integrating Green AffectiveValues and Material Selection in Automotive Design: A Preliminary Study

This paper presents a study on the integrating consumer’s green affective values and material selection in the context of product design, specifically in the automotive design. Green affective values are important element in the design to understand user’s emotion, need and preferences toward the green products. It is extremely important to understand user’s feeling on product to avoid potential market failure. The first impression on product is captivated by the use of materials. It is pointed out that intangible issues such as perceptions and intentions of the designer should take a role in the materials selection activity in product design. However, study on the linkage between green affective values and material selection are rarely found in the literature. Therefore, the objectives of this study are to identify the significant green affective values of the consumers in Malaysia and propose a guideline for automotive designers to incorporate affective values into conceptual design and investigate its linkage on material selection. The guideline includes a technology used to translate the consumer’s eco-feeling and impression of a particular component design with appropriate material selection, in this case is on car steering wheel design. Three surveys were conducted to obtain consumer’s understanding on affective values and the feelings elicited when presented with visual stimuli of the material. Semantic differential scale and factor analysis were used to analyze the results. The responses obtained from the surveys were used to develop an eco-tool, which translates user’s feelings and emotions into material properties and linking them to certain materials they perceived as “greener”. Life Cycle Analysis (LCA) and fuzzy logic were used in developing the material scorecard with regards to environmental profile of design model. The eco-tool was validated by product design experts to understand the usefulness and operability of the guideline. It was found that the tool is easy to navigate and having great potential to help designers on integrating green affective value in design with inclusion of technical aspect and cost into the tool.

SDG Bonds: An Exploration, via a Case Study, of the Key Attributes of a Novel Financial Instrument That May Help Achieve Agenda 2030’s Sustainable Development Goals

The launch by the United Nations of Agenda 2030 with its 17 Sustainable Development Goals (SDGs) is creating new paradigms for business, capital markets, society, and many other fields of human endeavor. Financing the SDGs is an important part of the solution. While Green bonds have taken a prominent role over the last decade in financing sustainability projects, their application remains a capital markets niche. The SDGs, because of their multiplicity, shift the paradigm from a focus on single “green” projects to a holistic concept of sustainability which goes beyond the single project or asset typically financed with Green bonds. As a result of the growing evidence of the significant business opportunities the SDGs offer, corporations are now increasingly embracing this holistic approach to sustainability and are deeply embedding the SDGs into their long term corporate strategies. Consequently corporations have been looking for a financial instrument that better caters to this holistic, rather than ad-hoc, approach to sustainability. SDG Bonds have been proposed as an answer to this need. The general-purpose SDG Bonds in particular offer the required flexibility to achieve broader goals beyond single project financing and importantly, provide an unambigous signal of this intention to investors who are increasingly seeking opportunities in this space. There are three cornerstones that underpin SDG Bond transactions: 1. A clear link to the sustainability strategy of the issuer, through pre-determined sustainability targets 2. An upfront discount in the pricing of the SDG Bond issue, that reflects the economic value of the sustainability strategy of the issuer 3. The assurance provided by external auditors on the achievement of the predetermined sustainability targets. The successful launch in September 2019 of the first ever general-purpose SDG Bond by ENEL, a multinational corporation, is a milestone in the financing of Agenda 2030. Potentially this expands opportunities to finance Agenda 2030, and indeed could be the beginning of a paradigm shift in debt and, perhaps in future, equity capital markets as holistic approaches to sustainability increasingly define corporate missions and investors’ perspectives. This behavioral shift by corporations and investors, and the creation by capital markets of new financial instruments to accommodate these aspirations may have another consequence. They may also represent further evidence of the declining relevance of economic theories based on “rational economic man”, and much of the microeconomic foundations of neo-classical economics. This paper examines the rationale that has led a major global corporation to issue SDG Bonds and how these differentiate themselves from Green bonds in significant ways. There are some, unexpected, consequences stemming from this event which are also briefly explored in this paper. Market pricing of SDG Bonds is analysed; it points to potential market failures in a number of areas. This, as well as other themes explored here, suggest several avenues of further research in what promises to become a rich new segment of study both for academics and practitioners in the capital markets.

Theoretical and practical motivations for the use of the moving average rule in the stock market

Abstract This paper provides some theoretical foundations for using moving average (MA) rules in the stock market. In particular, the paper analyzes the conditional probability of price increments and examines how this probability varies over time. We prove under certain assumptions that the probability of being in an uptrend is greater than the probability of being in a downtrend. This demonstration partially justifies the common use of MA rules in the stock market. Finally, we propose an ex-post empirical analysis to evaluate and compare the performance of some MA rules and other portfolio strategies in the US stock market. In this context, we also suggest a methodology that incorporates these trading rules as alarm rules to predict potential market failures. Our ex-post results confirm the advantages of using these trading rules to predict market trends and crises.

Contingent trade policy and economic efficiency

This paper models the competition for a domestic market between one domestic and one foreign firm as a pricing game under incomplete cost information. As the foreign firm incurs a trade cost to serve the domestic market, it prices more aggressively, giving rise to the possibility of an inefficient allocation. In spite of asymmetric information, we can devise a contingent trade policy to correct this potential market failure. National governments, however, make excessive use of such a policy due to rent shifting motives, thus creating another inefficiency. The expected inefficiency of national policy is found to be comparatively larger (lower) at low (high) trade costs. Hence contingent trade policy conducted by national governments is preferred only when trade costs are high.

Economic Dependence and Data Access

The EU Commission has opted to let the data market self-regulate itself and to rely on contractual freedom. This might lead to potential market failures deriving from discrepancies in bargaining power, having as a consequence that powerful data holders might start refusing to provide access to their data to undertakings with limited (or practically inexistent) bargaining power. Traditionally, under EU competition law, this could potentially lead to an abuse precluded by Article 102 TFEU. However, the scope of this provision is limited as it only applies to dominant undertakings. Therefore, this article will study whether the concept of abuse of economic dependence could prove to be a valuable alternative in order to deal with refusals, by non-dominant undertakings, to provide access to data to undertakings having a weaker bargaining power. The question is whether such a refusal, by a non-dominant undertaking benefiting from a “relative or superior market power”, to provide access to data to another undertaking, whose commercial activity “depends” on this access, could amount to an abuse of economic dependence. To do so, the rationale for data access and sharing in light of data’s characteristics will first be briefly outlined. Then, the conditions of the abuse of economic dependence will be identified, by relying on Belgian, German and French law. On these grounds, this article will question whether a refusal to provide access to data could qualify as an abuse of economic dependence.

Data Governance in Connected Cars, Access to In-Vehicle Data, Data Rights, and Competition Law (Presentation Slides)

In the ecosphere of connected driving huge sets of data are produced in connected cars, which can be used by many service providers. In the EU a very controversial policy discussion has emerged between the vehicle manufacturers, who try to get exclusive control of these data via their “extended vehicle” concept, and many other independent service providers who challenge such a “privileged position” of the vehicle manufacturers and demand regulatory solutions for ensuring “access to in-vehicle data and resources” for protecting fair and undistorted competition. The presentation analyzes this problem from an economic perspective, identifies potential market failures in regard to competition, information and privacy problems, and technological decisions, and discusses regulatory options in regard to data rights, competition law, and sector-specific solutions.

Perceptions of the economics of apprenticeship in Sweden c. 1900

ABSTRACTAt the end of the nineteenth and the beginning of the twentieth century, apprentice training was frequently debated in Sweden, just as in many other parts of Europe. This study analyses the economic perceptions of apprenticeship in the Swedish debate. Economic theories of apprenticeship, from Becker’s human capital concept to institutional theories, are used as a point of comparison. How the contemporary actors understood the economics of apprenticeship helps us understand the conditions of Swedish post-guild apprenticeship. The analysis reveals similarities between the contemporary description and the economic theories of on-the-job training, as well as historically specific aspects of the perceptions of the economics of apprenticeship. Both in the economic theories and in the turn-of-the-century debate, the problems plaguing apprenticeship tie in to the question of whether or not there was a sufficient level of training from a societal perspective, or if there was underinvestment. This, in turn, leads to the question of the need for state intervention to correct a potential market failure. At the time, the perceived problems of apprenticeship were used as justification for a proposed apprentice law, which was never passed, and limited state financial support for training that was instituted in 1917.

Proposals for a digital industrial policy for Europe

A digital industrial policy should take into account the new opportunities for industrial policy arising from digitalisation for tackling the sluggish economic growth performance in the Europe. The structural problems and potential market failures related to the adoption of digital technologies are identified. Apart from incentives to invest into digital infrastructure, the policy measures should strengthen the intangible asset base along the value added chain of the digital economy, fostering the related R&D activities, along with the skills of researchers and of workers. Public and private sector financing, combined through financial instruments, should focus on furthering entrepreneurship and implementation of innovative business plans.