market failure

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Market failure

The inability of arm's length markets to deliverer goods or services. A multinational corporation's market internalization advantages may take advantage of market failure.

Market Failure

A situation in which the market does not allocate resources efficiently. Market failure can occur for one of three reasons. It may occur when one party has power that can prevent efficient transactions from occurring. An example is a monopoly. A second reason is the possibility that an efficient transaction can have externalities (side effects) that reduce efficiency elsewhere in the market or the broader economy. Finally, market failure can occur because of the nature of certain goods or services. Some analysts believe that market failure is usually the result of insufficient government protection of property rights. Market failure has been cited as a reason for government intervention in the economy. See also: Government failure.

market failure

a situation where a MARKET either cannot serve as a means to allocate resources or where the resulting resource allocations would not maximize society's economic welfare. In the case of COLLECTIVE PRODUCTS, like defence, which are enjoyed in common by all consumers, there is no market to allocate defence resources. In other cases, markets exist but do not operate efficiently For example, a product the production and/or consumption of which involves large SOCIAL COSTS of POLLUTION (see EXTERNALITIES) may be overproduced and consumed since markets for these products take into account only the private costs of production and consumption, while products like vaccines may be underproduced and consumed because their positive externalities are not reflected in their market prices. Markets that are dominated by monopolists (see MONOPOLY) may not allocate resources efficiently since BARRIERS TO ENTRY may prevent firms from entering markets and expanding market supply in response to increased market demand. Finally, FACTOR markets may lead to socially undesirable income distributions when low-income workers are paid very little compared with other workers.

Market failure often necessitates government intervention to correct for such failure. Governments generally make decisions about the provision of collective goods and finance their provision through TAXATION. For products that involve pollution externalities, governments may impose corrective product taxes to discourage supply and consumption, while products with positive externalities may be subsidized (see SUBSIDY). Where markets are dominated by monopolies, governments can use COMPETITION POLICY to regulate the prices charged by monopolists and/or supply terms. Finally, governments can intervene to correct socially undesirable income distribution by correctives such as MINIMUM WAGE RATES to help the low paid, AGRICULTURAL POLICIES to subsidize farmers and PROGRESSIVE TAXATION to require high-income earners to pay more taxes. See PRICE SYSTEM, RESOURCE ALLOCATION, ALLOCATIVE EFFICIENCY, WELFARE ECONOMICS, ROAD CONGESTION.

References in periodicals archive ?
However, recent work on neighborhood effects using multilevel statistical methods has pointed to the possible contextual effects of residential areas on health even after controlling for individual characteristics.
Despite considerable progress over the last decade, researchers have only a limited understanding of which neighborhood effects are most likely to appear first, in what types of households or family members they may appear, under what circumstances, and with what durability of persistence.
All the income effects discussed are highly statistically significant, including when neighborhood effects are taken into account (see Appendix 2), and suggestive of a considerable impact of the projects on economic mobility, in all the econometric specifications used.
Great American city: Chicago and the enduring neighborhood effect. Chicago, IL: University of Chicago Press.
Perhaps the most dramatic evidence of the so-called "neighborhood effect" is the relationship between zip code and life expectancy (Center on Society and Health, 2016; Chetty, Hendren, & Katz, 2016).
Despite the differences between the American ghetto and disadvantaged neighborhoods, research on social exclusion and neighborhood effects in precarious or disadvantaged European neighborhoods (3) has significantly increased since the second half of the 90s, coinciding with evidence of an increased spatial and social polarization, coupled with evidence of school segregation, exacerbates the ethnic and racial tensions that take place in disadvantaged neighborhoods (Silver, 2012, Ellen, Steil & De la Roca, 2016).
Morenoff, and Thomas Gannon-Rowley, "Assessing Neighborhood Effects: Social Processes and New Directions in Research," Annual Review of Sociology (2002): 443-78.
"Neighborhood Effects," in Handbook of Regional and Urban Economics, Volume 4, edited by J.
There is a considerable amount of variation in these neighborhood effects across observations, as shown in Table 1.
Housing mobility programs are a departure from the standard way households sort into neighborhoods and therefore provide some of the best evidence on neighborhood effects. One of the first examples was the Gautreaux program in Chicago, which found evidence of neighborhood effects on educational and employment outcomes.
2009 "The Neighborhood Effects of Foreclosures." Journal of Geographical Systems 11: 317-22.
We conclude the article by testing for the presence of neighborhood effects for a variety of financial outcomes in the NFCS.

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