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A missing market is a situation in microeconomics where a competitive market allowing the exchange of a commodity would be Pareto-efficient, but no such market exists.
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A missing market is a situation in microeconomics where a competitive market allowing the exchange of a commodity would be Pareto-efficient, but no such market exists.
A variety of factors can lead to missing markets:
A classic example of a missing market is the case of an externality like pollution, where decision makers are not responsible for some of the consequences of their actions. When a factory discharges polluted water into a river, that pollution can hurt people who fish in or get their drinking water from the river downstream, but the factory owner may have no incentive to consider those consequences. Hence, there are no enough incentives for the formation of a pollution market.
Coordination failure can also prevent market formation. Again considering the pollution example, downstream residents might seek to be paid by the factory owner who pollute their water, but because of the free rider problem it may be difficult to coordinate.
Another barrier to pollution markets could be technology. If the river has several factories along its banks, it may be difficult or impossible to monitor which factory is responsible for downstream pollution.
High transaction costs might also deter market formation. It may be the case that both sides could benefit from an exchange of goods, but that setting up such an exchange is prohibitively expensive.
Markets can also be missing if there is a failure of trust or information. In non zero-sum interactions, it is possible that the Nash Equilibrium for individuals acting independently will be sub-optimal, in that both parties could benefit from cooperating, but on their own will choose not to. An example could be a shortage in footwear, where one person would like to open a factory to make shoes, and the other would like to produce socks, but because they are complementary commodities, neither has incentive to start producing unless he knows that the other will do the same (see also: prisoner's dilemma). The same applies to alternative automotive fuels: few filling station owners will be interested in offering the fuel until alternate-fuel cars are on the road, but people will not buy alternate-fuel cars until filling stations exist to service them.
In many cases of missing markets, it may be possible for the government or another actor to create circumstances that make market exchange possible. In the case of pollution, one popular solution is for the government to assign property rights in order to allow Coase Bargaining. In cases of information failure, futures markets can help to signal willingness to cooperate. An ownership solution is for one party to integrate into both activities, thereby internalizing the benefits, or to use the surplus generated on one side of the market to subsidize transactions on the other (see two sided markets).
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Environmental economics is a sub-field of economics concerned with environmental issues. It has become a widely studied subject due to growing environmental concerns in the twenty-first century. Environmental economics "undertakes theoretical or empirical studies of the economic effects of national or local environmental policies around the world. ... Particular issues include the costs and benefits of alternative environmental policies to deal with air pollution, water quality, toxic substances, solid waste, and global warming."
In economics, an externality or external cost is an indirect cost or benefit to an uninvolved third party that arises as an effect of another party's activity. Externalities can be considered as unpriced components that are involved in either consumer or producer market transactions. Air pollution from motor vehicles is one example. The cost of air pollution to society is not paid by either the producers or users of motorized transport to the rest of society. Water pollution from mills and factories is another example. All (water) consumers are made worse off by pollution but are not compensated by the market for this damage. A positive externality is when an individual's consumption in a market increases the well-being of others, but the individual does not charge the third party for the benefit. The third party is essentially getting a free product. An example of this might be the apartment above a bakery receiving some free heat in winter. The people who live in the apartment do not compensate the bakery for this benefit.
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In law and economics, the Coase theorem describes the economic efficiency of an economic allocation or outcome in the presence of externalities. The theorem is significant because, if true, the conclusion is that it is possible for private individuals to make choices that can solve the problem of market externalities. The theorem states that if the provision of a good or service results in an externality and trade in that good or service is possible, then bargaining will lead to a Pareto efficient outcome regardless of the initial allocation of property. A key condition for this outcome is that there are sufficiently low transaction costs in the bargaining and exchange process. This 'theorem' is commonly attributed to Nobel Prize laureate Ronald Coase.
A Pigouvian tax is a tax on any market activity that generates negative externalities. A Pigouvian tax is a method that tries to internalize negative externalities to achieve the Nash equilibrium and optimal Pareto efficiency. The tax is normally set by the government to correct an undesirable or inefficient market outcome and does so by being set equal to the external marginal cost of the negative externalities. In the presence of negative externalities, social cost includes private cost and external cost caused by negative externalities. This means the social cost of a market activity is not covered by the private cost of the activity. In such a case, the market outcome is not efficient and may lead to over-consumption of the product. Often-cited examples of negative externalities are environmental pollution and increased public healthcare costs associated with tobacco and sugary drink consumption.
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Government failure, in the context of public economics, is an economic inefficiency caused by a government intervention, if the inefficiency would not exist in a true free market. The costs of the government intervention are greater than the benefits provided. It can be viewed in contrast to a market failure, which is an economic inefficiency that results from the free market itself, and can potentially be corrected through government regulation. However, Government failure often arises from an attempt to solve market failure. The idea of government failure is associated with the policy argument that, even if particular markets may not meet the standard conditions of perfect competition required to ensure social optimality, government intervention may make matters worse rather than better.
The Vakhsh, also known as the Surkhob, in north-central Tajikistan, and the Kyzyl-Suu, in Kyrgyzstan, is a Central Asian river, and one of the main rivers of Tajikistan. It is a tributary of the Amu Darya river.
In economics, a market is a composition of systems, institutions, procedures, social relations or infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods or services to buyers in exchange for money. It can be said that a market is the process by which the prices of goods and services are established. Markets facilitate trade and enable the distribution and allocation of resources in a society. Markets allow any tradeable item to be evaluated and priced. A market emerges more or less spontaneously or may be constructed deliberately by human interaction in order to enable the exchange of rights of services and goods. Markets generally supplant gift economies and are often held in place through rules and customs, such as a booth fee, competitive pricing, and source of goods for sale.
The Commonize Costs–Privatize Profits Game is a concept developed by the ecologist Garrett Hardin to describe a "game" widely played in matters of resource allocation. The concept is Hardin's interpretation of the closely related phenomenon known as the tragedy of the commons, and is referred to in political discourse as "privatizing profits and socializing losses."
In environmental law and policy, market-based instruments (MBIs) are policy instruments that use markets, price, and other economic variables to provide incentives for polluters to reduce or eliminate negative environmental externalities. MBIs seek to address the market failure of externalities by incorporating the external cost of production or consumption activities through taxes or charges on processes or products, or by creating property rights and facilitating the establishment of a proxy market for the use of environmental services. Market-based instruments are also referred to as economic instruments, price-based instruments, new environmental policy instruments (NEPIs) or new instruments of environmental policy.
In economics, a spillover is a positive or a negative, but more often negative, impact experienced in one region or across the world due to an independent event occurring from an unrelated environment.
Nonpoint source (NPS) water pollution regulations are environmental regulations that restrict or limit water pollution from diffuse or nonpoint effluent sources such as polluted runoff from agricultural areas in a river catchments or wind-borne debris blowing out to sea. In the United States, governments have taken a number of legal and regulatory approaches to controlling NPS effluent. Nonpoint water pollution sources include, for example, leakage from underground storage tanks, storm water runoff, atmospheric deposition of contaminants, and golf course, agricultural, and forestry runoff.
Fair river sharing is a kind of a fair division problem in which the waters of a river has to be divided among countries located along the river. It differs from other fair division problems in that the resource to be divided—the water—flows in one direction—from upstream countries to downstream countries. To attain any desired division, it may be required to limit the consumption of upstream countries, but this may require to give these countries some monetary compensation.
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