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 ?
In nontechnical terms, one criticism of viewing MTO as evidence concerning neighborhood effects is that doing so interprets neighborhood poverty as equivalent to neighborhood quality.
In other words, neighborhood effects are present regardless of the methodology used to create a financial literacy score.
Neighborhood effects are also recognized to be important in job searches and they influence, in both time and space, the incidence of both segregation and urban poverty (Dawkins, 2004).
No neighborhood is an island: Incorporating distal neighborhood effects into multilevel studies of child developmental competence.
We traced neighborhood effects through two pathways that are connected to individual health outcomes.
The evaluation framework makes a clear distinction between (i) program effects from intent-to-treat and treatment-on-the-treated parameters and (ii) neighborhood effects from local-average-treatment-effect parameters.
In 2004 Verburg and his colleagues said that six key concepts in modeling are level of analysis, the dynamics of cross scale, driving forces, spatial interactions and neighborhood effects, time dynamism and coherence level.
There are empirical studies that focus on how neighborhood characteristics affect families and children, but research on neighborhood effects on employment is quite limited.
Together, Seismos and Paramos address two major sources of variability in a design: proximity variations due to stress and other neighborhood effects, and global variations due to the spread of manufacturing process parameters across different die and wafers.
Then section V presents the results of regressions that measure the neighborhood effects on teacher quality.
Keywords: urban poverty, sociological theory, poverty concentration, neighborhood effects, housing policy, HOPE VI
The gender gap in math: Its possible origins in neighborhood effects.

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