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Store: An Independent Institute Book
Co-publisher: Edward Elgar Publishing
54 Figures • 21 Tables
© 2002 |
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MARKET FAILURE OR SUCCESS
The New Debate
Edited by
Tyler Cowen, Eric Crampton
Recent years have seen the rise of new theories of market failure based on asymmetric information (wherein one party in a transaction knows more than the other) and network effects (the more popular a product, the more valuable it becomes). According to this new paradigm, we can expect substantial failure in the markets for labor, credit, insurance, software, new technologies and even used cars, to give but a few examples. Market failure at the microeconomic level, the theory suggests, may even create or aggravate disturbances throughout the economy.
But despite the cachet of the new market-failure theories, no systematic critical examination has been available—until now.
Market Failure or Success: The New Debate brings together the key papers on this new paradigm, including classic papers by Joseph Stiglitz, George Akerlof and Paul David—along with powerful theoretical and empirical rebuttals. These rebuttals challenge the assumptions of the new models and question the government policies based on them.
The book also shows how real markets operate, based on careful experimental studies, and suggests new areas for research.
Market Failure or Success is required reading for all who seek to better understand one of the most exciting debates in economics today.
Detailed Summary |
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Table of Contents
Part I. NEW MARKET FAILURE THEORIES
Chapter 1: Introduction
Tyler Cowen and Eric Crampton
Chapter 2: Towards a General Theory of Wage and Price Rigidities and Economic Fluctuations
Joseph E. Stiglitz
Chapter 3: Keynesian Economics and Critique of First Fundamental Theorem of Welfare Economics
Joseph E. Stiglitz
Chapter 4: The Market for “Lemons”: Quality Uncertainty and the Market
George A. Akerlof
Chapter 5: Path Dependence, Its Critics and the Quest for ‘historical economics’
Paul A. David
Part II. THEORETICAL RESPONSES
Chapter 6: Information and Efficiency: Another Viewpoint
Harold Demsetz
Chapter 7: Efficiency Wage Models of Unemployment—One View
H. Lorne Carmichael
Chapter 8: Do Informational Frictions Justify Federal Credit Programs?
Stephen D. Williamson
Chapter 9: The Demand and Supply of Assurance
Daniel B. Klein
Part III. EMPIRICAL AND EXPERIMENTAL RESPONSES
Chapter 10: Beta, Macintosh and other Fabulous Tales
Stan J. Liebowitz and Stephen E. Margolis
Chapter 11: Some Evidence on the Empirical Significance of Credit Rationing
Allen N. Berger and Gregory F. Udell
Chapter 12: An Empirical Examination of Information Barriers to Trade in Insurance
John Cawley and Tomas Philipson
Chapter 13: A Direct Test of the “Lemons” Model: The Market for Used Pickup Trucks
Eric W. Bond
Chapter 14: Public Choice Experiments
Elizabeth Hoffman
Chapter 15: Non-prisoner’s Dilemma
Gordon Tullock
Chapter 16: Group Size and the Voluntary Provision of Public Goods
Mark R. Isaac, James M. Walker, Arlington W. Williams
Chapter 17: Cooperation in Public-Goods Experiments: Kindness or Confusion?
James Andreoni
Index
Praise for Market Failure or Success “The new market failure theories are elegant but surprisingly bereft of empirical support. This important book, Market Failure or Success, draws attention to this failing and ought to ignite a critical debate. Do the new market failure theories fail because the theories are wrong or because markets have found ways to overcome the problems that the theories address? This book questions the new wisdom that market failure is ubiquitous and suggests instead that markets are more subtle than theorists have yet imagined!”
—JEFFREY MIRON, Professor of Economics, Boston University
“Market Failure or Success is a great book. The economics of asymmetric information—the possibility that markets may fail when a seller knows more about the quality of a car or a stock, when a patient knows more about his health than an insurer, when a worker knows more about his abilities than an employer—has fascinated economic theorists for a generation. In a critical reapprasial, however, many economists have found that these elegant theories do not correspond to real world market failures. Institutions arise so that these markets do function. This book brings together the theories and a variety of the empirical appraisals that were formerly scattered through the academic literature. Together with an admirable unifying introduction, it makes a clear case for the power of markets after all.”
—JOHN H. COCHRANE, Theodore O. Yntema Professor of Finance, University of Chicago
“Market Failure or Success is an excellent book that goes a long way to correct the egregious errors of interpretation and fact in the new theories of market failure based on asymmetric information. Much of the new theory was born refuted by ongoing market institutional responses to the alleged failures. Do we have another famous example of the empty box?”
—VERNON L. SMITH, Nobel Laureate in Economic Science; Professor of Economics and Law, George Mason University
“Economists typically justify government regulation as a necessary cure for ‘market failure’—circumstances in which markets fail to allocate resources efficiently. Much professional effort is devoted to evoking those circumstances; less is devoted to thinking hard about market forces that might counter market failure; and still less effort is given to serious analysis of the facts about alleged cases of market failure. Market Failure or Success has it all: the reasons for suspecting market failure, the counter forces they unleash and, importantly, the facts about how the suspect markets work. All of it is written by economists who have been leading figures in the debate about the role of market failure in our economy. This book will be an invaluable reference for anyone interested in how economists have analyzed this important concept.”
—SAM PELTZMAN, Professor of Economics, Graduate School of Business, University of Chicago About the Editors Tyler Cowen is general director of the Mercatus Center and the James M. Buchanan Center for Political Economy at George Mason University.
Eric Crampton is a graduate fellow at the Center for the Study of Public Choice, George Mason University.
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