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Market and Non-Market Failures: Comparison and Assessment1

Published online by Cambridge University Press:  28 November 2008

Charles Wolf Jr
Charles Wolf Jr
Affiliation:
Senior Economist, RAND Corporation
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Abstract

This paper aims to redress the asymmetry in the standard economic treatment of the shortcomings of markets and governments by developing and applying a theory of ‘nonmarket’ failure– that is, of government failure – so that the comparison between markets and governments can be made more systematically, and choices between them arrived at more intelligently. Several conclusions are drawn. First, the choice between markets and governments is not a pure one, actual systems inevitably involve combinations between markets and governments. Second, with respect to both static and dynamic efficiency criteria, markets generally do better than governments. Third, there are various ways in which government can contribute to improving the functioning of markets. Fourth, market forces can play a useful role in improving the functioning of government and reducing the incidence of nonmarket failures.

Type
Articles
Information
Journal of Public Policy , Volume 7 , Issue 1 , January 1987 , pp. 43 - 70
Copyright
Copyright © Cambridge University Press 1987

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