Abstract
What is it we mean by “market failure”? Typically, at least in allocation theory, we mean the failure of a more or less idealized system of price-market institutions to sustain “desirable” activities or to estop “undesirable” activites.1 The desirability of an activity, in turn, is evaluated relative to the solution values of some explicit or implied maximum-welfare problem.
Quarterly Journal of Economics (1958), pp. 351–79.
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Notes
We could consider, instead, the configuration which associates with the initial pattern of ownership of endowment. Or we could play it safe and extend the conditions to cover each and every Pareto efficient configuration. But this would be overly strict, since many efficient situations have no relevance either to any interesting W-functions or in terms of the initial distribution of scarcities. It may be worth noting, incidentally, that “existence,” as used above, is not the same as existence in the sense of, e.g., Arrow and Debreu (in “Existence of an Equilibrium for a Competitive Economy,” Econometrica, Vol. 22 (July 1954), pp. 265–90).
The pioneer work on decreasing cost situations is Jules Dupuit’s remarkable 1844 essay, “On the Measurement of Utility of Public Works,” translated in International Economic Papers, No. 2, ed. A. T. Peacock et al. Harold Hotelling’s “The General Welfare in Relation to Problems of Taxation and of Railway and Utility Rates,” in the July 1938 issue of Econometrica, is the originating modern formulation. Cf., also references to work by R. Frisch, J. E. Mesde, W. A. Lewis and others in Nancy Ruggles’ excellent survey articles on marginal cost pricing (Review of Economic Studies, XVII (1949–50), 29–46
P. A. Samuelson, Review of Economics and Statistics, XXXVI (Nov. 1954), p. 387.
P. A. Samuelson, Review of Economics and Statistics, XXXVII (Nov. 1955), p. 350.
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Bator, F. (1995). The Anatomy of Market Failure. In: Estrin, S., Marin, A. (eds) Essential Readings in Economics. Palgrave, London. https://doi.org/10.1007/978-1-349-24002-9_7
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