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IBE316-4 - IBE 316 Economic Policy Stiglitz Economics of...

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IBE 316 Economic Policy Stiglitz: Economics of the Public Sector Chapter 4: Market Failure Keisuke OTSU Sophia University FLA Spring 2008 OTSU (Sophia University FLA) IBE 316 Spring 2008 1 / 18
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Overview Overview Chapter 3 says in a perfect world, market economy leads to Pareto e¢ ciency Chapter 4 explains how and why the government intervenes in the market when the market fails to produce goods e¢ ciently even when they are e¢ cient OTSU (Sophia University FLA) IBE 316 Spring 2008 2 / 18
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Overview Focus Questions 1 What are the principal reasons why market fail to produce e¢ cient outcomes? 2 What role does government play in making it possible for markets to work at all? 3 Why might the government intervene in the market°s allocation of resources, even when it is Pareto e¢ cient? What are merit goods? What is the government role in redistribution? 4 What is the "market failure" approach to the role of government? What are alternative perspectives in thinking about the role of government? OTSU (Sophia University FLA) IBE 316 Spring 2008 3 / 18
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Property Rights and Contract Enforcement Even for markets to work, there needs to be a government to de±ne property rights and enforce contracts Property rights: the right to posses and exchange an asset includes intellectual property rights without property rights, incentives to save and invest are weaker Contract enforcement: to force people to honor contracts without contract enforcement, no trade or ±nance will exist the level of enforcement is di/erent across countries OTSU (Sophia University FLA) IBE 316 Spring 2008 4 / 18
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Property Rights and Contract Enforcement
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