No Perfect Solutions for Market Imperfections

56 Pages Posted: 24 Oct 2022 Last revised: 15 Nov 2022

See all articles by Jeremy Kidd

Jeremy Kidd

Drake University - Law School

Date Written: October 21, 2022

Abstract

Markets are imperfect, and the suboptimal results are frequently used to justify government regulation. Government regulation, however, is also imperfect, and the suboptimal results are, less-frequently, used to justify deregulatory efforts. Located between those poles is industry self-regulation, in which the industry is tasked with effectuating regulatory goals. Unfortunately, but perhaps not surprisingly, industry self-regulation is also imperfect. Industry members, when called on to engage in self-regulation, will face what Austrian economists call the knowledge problem, but at lesser severity than full government regulation. Industry members will also face a variety of public choice pressures, and those pressures may be more disruptive than under full government regulation. There are, therefore, no perfect solutions, and policy makers seeking solutions must weigh the relative tradeoffs on a case-specific basis, if they wish to obtain optimal outcomes.

Keywords: Self-regulation, rent-seeking, knowledge problem, public choice, regulatory capture

JEL Classification: B53, D02, D43, D72, D73, D82, K23,

Suggested Citation

Kidd, Jeremy, No Perfect Solutions for Market Imperfections (October 21, 2022). Law & Economics Center at George Mason University Scalia Law School Research Paper Series No. 22-027, Available at SSRN: https://ssrn.com/abstract=4254370 or http://dx.doi.org/10.2139/ssrn.4254370

Jeremy Kidd (Contact Author)

Drake University - Law School ( email )

27th & Carpenter Sts.
Des Moines, IA 50311
United States

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