- "Market failure is a situation in which the allocation of goods and services by a free market is not Pareto efficient, often leading to a net loss of economic value."
Discussion of how market failures can cause environmental problems and the need for government intervention.
Externalities: Externalities refer to the effects of an economic activity on parties who are not involved in it, either positively or negatively.
Tragedy of the Commons: This refers to the depletion of a shared resource due to overuse because there is no ownership and private benefits.
Public Goods: Public goods are goods and services that are generally considered to be essential for the well-being of society and are thus provided by the government rather than the market.
Regulatory Policy: Regulatory policies are enacted to prevent various forms of market failure by requiring individuals and businesses to meet certain standards, such as environmental standards.
Market-based Mechanisms: Market-based mechanisms refer to pricing externalities through taxes or trading systems such as cap and trade.
Natural Resource Economics: Natural resource economics is the study of how natural resources are used and conserved, and the impact that natural resources have on economic activity.
Cost-benefit Analysis: Cost-benefit analysis is a tool used to determine the economic feasibility of a given policy or project by weighing the costs of it against the benefits.
Sustainable Development: Sustainable development is an approach to economic development that seeks to balance economic growth with environmental protection and social equity.
Polluter Pays Principle: The polluter pays principle is the idea that those who cause environmental harm should be responsible for the cost of remedying it.
Environmental Justice: Environmental justice is the principle that everyone should have equal access to a clean and healthy environment, regardless of race, ethnicity, or income.
Green Accounting: Green accounting is the practice of taking into account the environmental and social costs of economic activity when calculating economic growth and prosperity.
Bioeconomic models: The use of biophysical models for ecosystems to assess economic value and impacts.
Ecological Footprints: The ecological footprint is a measure of how much biologically productive land and water a given population consumes to produce the natural resources, and for assimilating waste.
Carbon Pricing: Carbon pricing refers to putting a price on carbon emissions to reduce their negative environmental impacts.
Emissions Trading: Emissions trading is a market-based mechanism where countries, businesses or organizations buy and trade permits for greenhouse gas emissions.
Externalities: Externalities occur when the actions of one party have an impact on the welfare of another party, but the cost or benefit is not reflected in the market price. For instance, pollution created by a factory has an adverse impact on the environment, but the cost of pollution is not borne by the factory.
Public goods: Public goods are goods that benefit everyone in society, and their consumption is non-excludable and non-rivalrous. The provision of such goods may be underfunded or not provided at all by the market because of the free-rider problem.
Asymmetric information: Asymmetric information exists when one party has more information about a product or service than another party. This creates an imbalance of power and leads to adverse selection and moral hazard.
Market power: When a single player or group of players have significant market power, they may distort competition and price goods or services higher than what a competitive market would. This can lead to inefficient outcomes and harm the environment.
Tragedy of the commons: The tragedy of the commons occurs when a shared resource, such as air or water, is overused and depleted as a result of the competitive individual pursuits of users. The market is efficient in terms of individual use, but overall it leads to a depletion of the resource.
Uncertainty: Markets may disregard future potential environmental costs or benefits because of uncertainty. This can result in either over or under consumption of resources, leading to inefficient outcomes.
- "Market failures can be viewed as scenarios where individuals' pursuit of pure self-interest leads to results that are not efficient – that can be improved upon from the societal point of view."
- "The first known use of the term by economists was in 1958."
- "Market failures are often associated with public goods, time-inconsistent preferences, information asymmetries, non-competitive markets, principal–agent problems, or externalities."
- "The existence of a market failure is often the reason that self-regulatory organizations, governments or supra-national institutions intervene in a particular market."
- "Such analysis plays an important role in many types of public policy decisions and studies."
- "However, government policy interventions, such as taxes, subsidies, wage and price controls, and regulations, may also lead to an inefficient allocation of resources, sometimes called government failure."
- "Most mainstream economists believe that there are circumstances (like building codes or endangered species) in which it is possible for government or other organizations to improve the inefficient market outcome."
- "Several heterodox schools of thought disagree with this as a matter of ideology."
- "An ecological market failure exists when human activity in a market economy is exhausting critical non-renewable resources, disrupting fragile ecosystems, or overloading biospheric waste absorption capacities."
- "In none of these cases does the criterion of Pareto efficiency obtain."
- "It is critical to create checks on human activities that cause societal negative externalities."
- "Market failures are often associated with... information asymmetries."
- "Market failures are often associated with... principal–agent problems."
- "Market failures are often associated with... non-competitive markets."
- "Government policy interventions, such as taxes, subsidies, wage and price controls, and regulations, may also lead to an inefficient allocation of resources..."
- "Market failures are often associated with... time-inconsistent preferences."
- "Most mainstream economists believe that there are circumstances... in which it is possible for government or other organizations to improve the inefficient market outcome."
- "The concept has been traced back to the Victorian philosopher Henry Sidgwick."
- "Economists, especially microeconomists, are often concerned with the causes of market failure and possible means of correction."