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Tuesday, October 16, 2007

Market Forces: Is it Flawed?

Reuters has an interesting interview where Nobel economics winner says market forces flawed:

In its statement with the award, the Royal Swedish Academy of Sciences said the market's efficiency may be undermined because consumers are not perfectly informed, competition is not completely free, and "privately desirable production and consumption may generate social costs and benefits."

"Markets work well with goods that economists call private goods" like cars or other consumer durables, Maskin said in his office at the Institute for Advanced Study in Princeton, New Jersey.

"If I buy a car, I use the car, you don't and the market for cars works pretty well. But there are many other sorts of goods, often very important goods, which are not provided well through the market. Often, these go under the heading of public goods," he said.

"How do we ensure in the case of public goods that they are provided at all, and that they are provided at the right level, taking into account citizens' preferences?" he said.

A clean environment, for example, is not a private good in that "my enjoyment of it doesn't preclude yours," he said.

"So the theory of mechanism design asks what sort of procedures or mechanisms or institutions could be put in place which allow us to choose the right level," he said.

Those mechanisms could include taxes to allow the more efficient provision of public goods, he said.