◆ MARKET FAILURES & POLICY
Market Failures
Externalities, public goods, common resources, the Coase theorem, and Pigovian solutions.
19 articles
FeaturedPigovian Taxes and Subsidies: Putting a Price on What the Market Ignores
A Pigovian tax equals the harm a transaction inflicts on third parties. Here is a carbon-tax worked example, line by line, and where the idea gets tricky.
Read more →Deep Dives
8 articles
◆ MARKET FAILURES
When Markets Get It Wrong: The Four Sources of Market Failure
Markets usually allocate resources well, but four specific defects make them fail predictably: externalities, public goods, market power, and bad information.
◆ MARKET FAILURES
Negative Externalities: When Your Transaction Costs Someone Who Wasn't at the Table
A negative externality is a cost a transaction dumps on a third party. Here is the social-vs-private cost wedge, quantified with a polluting factory.
◆ MARKET FAILURES
The Market Provides Too Little of the Best Things: The Economics of Positive Externalities
A positive externality is a benefit your choice gives others for free. Because you can't bill them, the market underproduces it — vaccines, education, research.
◆ MARKET FAILURES
The Coase Theorem: When Private Bargaining Solves What Regulation Can't
Ronald Coase showed that if property rights are clear and bargaining is cheap, private parties can solve externalities themselves — and where that breaks.
◆ MARKET FAILURES
The Four Types of Goods: Why Excludability and Rivalry Determine How Markets Work
Two yes-or-no questions sort every good into one of four boxes. The box decides whether a market, a government, or neither can supply it well.
◆ MARKET FAILURES
The Tragedy of the Commons: When Rational Choices Wreck a Shared Resource
Nobody set out to kill the cod. Every captain was doing the rational thing. That is exactly what makes the tragedy of the commons worth understanding.
◆ MARKET FAILURES
Government vs. Market: When Public Provision Makes Sense and When It Doesn't
Markets handle most goods efficiently. But some goods break that logic. Here's how to tell which is which before you take a side.
◆ MARKET FAILURES
The Free-Rider Problem: Why Public Goods Don't Fund Themselves
If you benefit whether or not you pay, why pay? That logic, replicated across everyone, is why public goods go unfunded and what actually fixes it.