The Failure of Market Failure

Journal of Policy Analysis and Management: Vol 18, No 4, 558-578, 1999

21 Pages Posted: 16 Jul 2014

See all articles by Richard O. Zerbe

Richard O. Zerbe

University of Washington - Daniel J. Evans School of Public Affairs; University of Washington - School of Law

Howard E. McCurdy

American University

Date Written: 1999

Abstract

The concept of market failure was originally presented by economists as a normative explanation of why the need for government expenditures might arise. Gradually, the concept has taken on the form of a full-scale diagnostic tool frequently employed by policy analysts to determine the exact scope and nature of government intervention. For some time, economists have known that the market failure idea is conceptually flawed. The authors of this article demonstrate why this is so, employing concepts drawn from the perspective of transaction costs. In a review of empirical studies, they further show how the market failure diagnostic leads analysts to make generalizations that are not supported by facts. Transaction cost analysis helps to explain the underlying processes involved.

Suggested Citation

Zerbe, Richard O. and McCurdy, Howard E., The Failure of Market Failure (1999). Journal of Policy Analysis and Management: Vol 18, No 4, 558-578, 1999, Available at SSRN: https://ssrn.com/abstract=2466644

Richard O. Zerbe (Contact Author)

University of Washington - Daniel J. Evans School of Public Affairs ( email )

Box 353055
Seattle, WA 98125
United States
206-616-5470 (Phone)

University of Washington - School of Law

William H. Gates Hall
Box 353020
Seattle, WA 98105-3020
United States

Howard E. McCurdy

American University ( email )

4400 Massachusetts Ave, NW
School of Public Affairs
Washington, DC 20016
United States
(202) 885-6236 (Phone)

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