Market failure

1
Market failure
2
Market failure

• Market failure occurs when the price and quantity
  established through market exchange are not
  socially optimal, efficient
• Is the quantity and price of habitat for
  migrating monarchs socially optimal?

3
Basic conditions for market efficiency

• Large numbers of buyers and sellers trading
  identical products

4
Basic conditions for market efficiency

• Complete property rights system
• Resources are privately owned
• Rights are tradable
• Rights are enforced

5
Common sources of failure in natural resource
markets

• External costs / Negative externality
• External benefits / Positive externality
• Public goods
• Open access resources
• Monopoly ownership/control of a resource stock