Government Failure vs. Market Failure: Principles of Regulation

doi:10.1017/CBO9780511657504.002

1 - Government Failure vs. Market Failure: Principles of Regulation

Published online by Cambridge University Press: 20 January 2010

Joseph E. Stiglitz

Edited by

Edward J. Balleisen and

David A. Moss

Show author details

Edward J. Balleisen: Affiliation:
Duke University, North Carolina
David A. Moss: Affiliation:
Harvard University, Massachusetts

Book contents

Get access

Summary

The subject of regulation has been one of the most contentious, with critics arguing that regulations interfere with the efficiency of the market, and advocates arguing that well-designed regulations not only make markets more efficient but also help ensure that market outcomes are more equitable. As the economy plunged into a recession, with more than 3 million Americans already having lost their homes as this chapter goes to press and millions more likely to do so (unless the government intervenes more successfully than it has), and as the government spends hundreds of billions in bailouts to prevent the economic recession from growing worse, there is a growing consensus: There was a need for more government regulation. Even the high priest of laissez faire economics, Alan Greenspan, has admitted that he may have gone too far in believing that markets could be self-regulating.

Responding to these calls – as if to close the barn door after all the horses have gotten out – the Federal Reserve has tightened some regulations. If it is the case that better regulations could have prevented, or even mitigated, the downturn, the country, and the world, will be paying a heavy price for the failure to regulate adequately. And the social costs are no less grave – as hundreds of thousands of Americans will not only have lost their homes but also their lifetime savings.

Type: Chapter
Information: Government and Markets
Toward a New Theory of Regulation
, pp. 13 - 51

DOI: https://doi.org/10.1017/CBO9780511657504.002 [Opens in a new window]

Publisher: Cambridge University Press

Print publication year: 2009

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Book purchase

Temporarily unavailable

References

Sinclair, Upton, The Jungle, New York: WW Norton, 2002Google Scholar

Smith, A., An Inquiry into the Nature and Causes of the Wealth of Nations, Chicago: University of Chicago Press, 1976Google Scholar

Arrow, K.J., “An Extension of the Basic Theorems of Classical Welfare Economics,” Proceedings of the Second Berkeley Symposium on Mathematical Statistics and Probability, Neyman, J., ed., Berkeley: University of California Press, 1951, pp. 507–532Google Scholar

Debreu, Gerard, The Theory of Value, New Haven: Yale University Press, 1959Google Scholar

Greenwald, Bruce and Stiglitz, J. E., “Externalities in Economies with Imperfect Information and Incomplete Markets,” Quarterly Journal of Economics, 1986, Vol. 101, No. 2 (May), pp. 229–64CrossRef Google Scholar

Economic Theory and the Welfare State, Barr, Nicholas (ed.), Cheltenham, U.K.: Edward Elgar, 2000

Stiglitz, J. E., Roaring Nineties, New York: WW Norton, 2003Google Scholar

Stiglitz, J. E., “The Role of the State in Financial Markets,” Proceeding of the World Bank Conference on Development Economics 1993, Washington, D.C.: World Bank, pp. 41–6Google Scholar

Stiglitz, J. E., “Perspectives on the Role of Government Risk-Bearing within the Financial Sector,” in Government Risk-bearing, Sniderman, M. (ed.), Norwell, MA: Kluwer Academic Publishers, 1993, pp. 109–30CrossRef Google Scholar

Sappington, D. and Stiglitz, J. E., “Information and Regulation,” in Public Regulation, Bailey, E. (ed.), London: MIT Press, 1987, pp. 3–43Google Scholar

Greenwald, and Stiglitz, , op. cit. focus on price interventions, but Martin Weitzman (“Prices vs. Quantities,” The Review of Economic Studies, 41(4), October 1974, pp. 477–91)Google Scholar

Stiglitz, J. E., Ocampo, José Antonio, Spiegel, Shari, Ffrench-Davis, Ricardo, and Nayyar, Deepak, Stability with Growth: Macroeconomics, Liberalization, and Development, The Initiative for Policy Dialogue Series, Oxford: Oxford University Press, 2006CrossRef Google Scholar

Honohan, P. and Stiglitz, J. E., “Robust Financial Restraint,” in Financial Liberalization: How Far, How Fast?Caprio, G., Honohan, P. and Stiglitz, J. (eds.), Cambridge, U.K.: Cambridge University Press, 2001, pp. 31–63CrossRef Google Scholar

Dasgupta, P. and Stiglitz, J.E., “Tariffs Versus Quotas As Revenue Raising Devices Under Uncertainty,” American Economic Review, 67(5), December 1977, pp. 975–81Google Scholar

Stiglitz, J.E. and Weiss, A., “Credit Rationing in Markets with Imperfect Information,” American Economic Review, 71(3), June 1981, pp. 393–410Google Scholar

Titmuss, Richard Morris, The Gift Relationship: From Human Blood to Social Policy, New Press: New York, 1997 (reissue of 1970 book)Google Scholar

Schwartz, Joel, “Blood and Altruism – Richard M. Titmuss' Criticism on the Commercialization of Blood,” Public Interest, Summer 1999Google Scholar

Sappington, David and Stiglitz, J. E., “Privatization, Information and Incentives,” Journal of Policy Analysis and Management, 6(4), 1987, pp. 567–82CrossRef Google Scholar

The Political Economy of Privatization and Deregulation, Baily, E. and Hower, J. (eds.), Edward Elgar, 1993

Stiglitz, J.E., Globalization and its Discontents, New York: W.W. Norton, 2002Google Scholar

Stiglitz, J. E., “Regulating Multinational Corporations: Towards Principles of Cross-border Legal Frameworks in a Globalized World Balancing Rights with Responsibilities,” American University International Law Review, 23(3), 2008, pp. 451–558Google Scholar

Stigler, G., 1971, “The Theory of Economic Regulation,” Bell Journal of Economics, 2(1), Spring 1971, pp. 3–21CrossRef Google Scholar

Laffont, J.J. and Tirole, J., “The Politics of Government Decision Making: a Theory of Regulatory Capture,” Quarterly Journal of Economics, 106(4) November 1991, pp. 1089–127CrossRef Google Scholar

Levine, M.E. and Forrence, J.L., “Regulatory Capture, Public Interest, and the Public Agenda: Toward a Synthesis,” Journal of Law, Economics, and Organization, 6, April 1990, pp. 167–98CrossRef Google Scholar

Stiglitz, J. E., “Central Banking in a Democratic Society,” De Economist (Netherlands), 146(2), 1998, pp. 199–226CrossRef Google Scholar

Sah, R.: “Human Fallibility and Economic Organization,” American Economic Review, 75(2), May 1985, pp. 292–6Google Scholar

“The Architecture of Economic Systems: Hierarchies and Polyarchies,” American Economic Review, 76(4), September 1986, pp. 716–27

“Committees, Hierarchies and Polyarchies,” The Economic Journal, 98(391), June 1988, pp. 451–70CrossRef

“Qualitative Properties of Profit-Maximizing K-out-of-N Systems Subject to Two Kinds of Failure,” IEEE Transactions on Reliability, 37(5), December 1988, pp. 515–20CrossRef

Grossman, Sanford and Stiglitz, J. E., “On Value Maximization and Alternative Objectives of the Firm,” Journal of Finance, 32(2), May 1977, pp. 389–402CrossRef Google Scholar

“Stockholder Unanimity in the Making of Production and Financial Decisions,” Quarterly Journal of Economics, 94(3), May 1980, pp. 543–66CrossRef

Grossman, Sanford and Hart, Oliver, and Hart, O., 1980. “Takeover Bids, the Free-rider Problem and the Theory of the Corporation,” Bell Journal of Economics, 11(1), pp. 42–64CrossRef Google Scholar

“The Allocational Role of Takeover Bids in Situations of Asymmetric Information,” Journal of Finance, 36(2), 1981, pp. 253–70CrossRef