Market Failures
Author: Goodwin, Neva
Source: The Aspen Institute Center for Business Education's Corporate Governance and Accountability Project
Year: 2006
Abstract:
This Teaching Module was prepared by Dr. Neva Goodwin, Co-Director of the Global Development and Environment Institute at Tufts University, and the GDAE team, as part of CasePlace.org's Corporate Governance and Accountability Project
Some managers believe that they need not concern themselves with social and environmental issues because markets can be trusted to enforce efficiency and make businesses serve the social good. While economists point out that markets often lead to beneficial results, economists also know that such results only occur if certain assumptions hold. Consideration of any of a number of real world factors greatly complicates the story. Each of the following is a factor that can lead to “market failure”—a situation in which the outcomes generated by markets are inefficient or even directly socially harmful:
• Public goods
• Externalities
• Transaction costs
• Market power
• Problems of information
• Problems of expectations
• Consideration of human needs and equity
This Teaching Module contains numerous cases and references, illustrating the issues these raise for managers and some of the potential solutions.
Click here for a background paper describing the causes of market failure.
Click here for teaching notes for each of the above factors - these are descriptions of how the following materials might be used to teach about each of the above-mentioned causes of market failure.
***Please note: The teaching notes accessed through the above link present the correct ordering of these documents.***
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