Definition of Market Failure
As defined by Winston (2006), “market failure is an equilibrium allocation of resources that is not Pareto Optimal – the potential causes of which may be market power, natural monopoly, imperfect information, externalities, or public good.” In this context, the Pareto Optimality or efficiency paradigm states that for microeconomic efficiency to be achieved, there should be no room to make one person better-off without making another worse-off.
Dollery and Wallis (2001) on the other hand defined market failure as “the inability of a market or system of markets to provide goods and services either at all or in an economically optimal manner.” In terms of allocative efficiency as postulated by Pigou (1920), market failure occurs when marginal social costs do not equal marginal social benefits – that is, the lack of simultaneity between market prices and marginal social costs, indicating that market prices do not precisely signal social costs incurred in the...
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Jackson, E.A., Jabbie, M. (2019). Understanding Market Failure in the Developing Country Context. In: Leal Filho, W., Azul, A., Brandli, L., Özuyar, P., Wall, T. (eds) Decent Work and Economic Growth. Encyclopedia of the UN Sustainable Development Goals. Springer, Cham. https://doi.org/10.1007/978-3-319-71058-7_44-1
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