Abstract
A market is an exchange institution that serves society by organising economic activity. Markets use prices to communicate the wants and limits of a diffuse and diverse society so as to bring about co-ordinated economic decisions in the most efficient manner. The power of a perfectly functioning market rests in its decentralised process of decision making and exchange; no omnipotent central planner is needed to allocate resources. Rather, prices ration resources to those who value them the most and, in doing so, individuals are swept along by Adam Smith's invisible hand to achieve what is best for society as a collective. Optimal private decisions based on mutually advantageous exchange lead to optimal social outcomes.
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© 1997 Nick Hanley, Jason F. Shogren and Ben White
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Hanley, N., Shogren, J.F., White, B. (1997). Market Failure. In: Environmental Economics in Theory and Practice. Macmillan Texts in Economics. Palgrave, London. https://doi.org/10.1007/978-1-349-24851-3_2
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DOI: https://doi.org/10.1007/978-1-349-24851-3_2
Publisher Name: Palgrave, London
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