Market fiasco externalities. Market failures, Market fiasco

The concept of market failures

A market failure, or "market fiasco" as it is also called, is a situation in which the market fails to coordinate the processes of economic choice in such a way as to ensure efficient use. The moment when the market is unable to ensure the efficient use of resources and the production of the required amount of goods, then they speak of market failures. The situation when the market mechanism does not lead to the optimal distribution of society's resources is called market failure or fiasco.

There are usually four types of inefficient situations that indicate "failures" of the market:

1. Monopoly;

2. Imperfect information;

3. External effects;

4. Public goods.

In all these cases, the state comes to the rescue. It tries to solve these problems by implementing antimonopoly policy, social insurance, limiting the production of goods, stimulating the production and consumption of economic goods. These areas of state activity constitute, as it were, the lower limit of state intervention in the market economy. However, in modern world the economic functions of the state are much broader. Among them: infrastructure development, education financing, unemployment benefits, various types of pensions and benefits for low-income members of society, and more. Only a small number of these services have the properties of public goods. Most of them are not consumed collectively, but individually. Usually the state pursues an anti-inflationary and antimonopoly policy, seeks to reduce unemployment. In recent decades, it has become more and more actively involved in the regulation of structural changes, stimulates scientific and technological progress, and strives to maintain high rates of development. national economy. If we add to this regional and foreign economic regulation. All this is reflected in Figure 3.

Figure 3. Market failures

Types of market fiasco

There is a list of the most typical market failures. The first is usually called violations of the conditions perfect competition expressed in the restriction of access to natural resources. These can be artificial (quotas, licenses, direct prohibitions) or natural barriers. In the latter case, the emergence of natural monopolies is possible. A natural monopoly is a market situation in which the minimum average production cost is achieved when there is only one firm producing a given product or service. Occurs where there are no real alternatives, there are no close substitutes, the product produced is to some extent unique, in addition, an increase in the number of firms in this industry causes an increase in average costs. Examples of natural monopolies are oil companies, electric power companies, railroads, telephone companies, space and military industries. Another failure of the market is its inability to provide access to complete and perfect information about goods, sellers, communication conditions for all market participants. There may be situations when the seller knows that his goods are heterogeneous, that the qualities of individual units of the goods may differ significantly, and the buyer does not have a clear idea about this. In such cases, one speaks of information asymmetry. The information asymmetry graph is shown in Figure 4.

Figure 4. Information asymmetry

Comment to Figure 4: Figure 4 shows the change in sales of land plots due to information asymmetry: a decrease in sales of higher quality land plots and an increase in sales of lower quality land plots. Dk, Sk - supply and demand for higher quality land, Dн, Sн - supply and demand for less quality land plots. Qrev. conv - the volume of purchases of land plots of better and lower quality, made in the land market in the absence of information asymmetry, Qac. k - the volume of purchases of better land plots under the influence of information asymmetry, Qac. n - the volume of purchases of less quality land plots under the influence of information asymmetry. If the asymmetry of information does not allow buyers to identify land by quality, their expectations are due to the fact that among the land plots on the market some are of better quality, and some are of less quality, then the demand curve will move to the position Dasim, between the demand curves for better and less quality land. There will be no shift in direct supply, as the sellers are well aware of the quality of the land they are selling. As a result, there is a shift in the volume of purchases towards a lower quality good.

Another condition that can reduce the effectiveness of the market mechanism is the immobilization of resources. Many reasons today stand in the way of a Russian worker who wishes to change jobs in one city, and even more such reasons will arise if he decides to move to another city. This is the absence of many social guarantees, differences in living standards in different regions, the uncertainty of the legal status of a citizen, and so on. As a result, monopolies are formed in the labor markets, the efficiency of production decreases, and the gap in the level of incomes of various segments of the population widens. In other cases, the assets of enterprises are immobilized when the funds invested in fixed assets cannot be quickly released and put back into circulation.

There are also so-called external effects, they economic activity can be both positive and negative. Externalities are costs to individuals or society that are not reflected in prices (negative externalities) or benefits that are enjoyed by individuals not participating in the transaction (positive externalities). When an expedition accidentally finds an ancient city, it can be considered a positive externality. Unfortunately, economic activity in the modern economy has many more examples of negative externalities. One of the clearest and most typical examples of negative externalities is environmental pollution. For example, a chemical plant produces fertilizers. Its owner receives income, the buyer receives utility, that is, mineral fertilizers, and local residents receive environmental pollution, a decrease in the number of birds and insects, diseases, and a reduction in life expectancy. Negative externalities are losses, costs of third parties not participating in the market transaction. These external costs are not reflected in the individual production costs of firms, since the latter do not include the costs of reducing emissions of harmful substances into the atmosphere or treating wastewater. The presence of negative externalities means that the price does not fully reflect the social costs of production, which are actually higher than the individual ones. To mitigate this market deficiency, the state implements various corrective measures designed to reflect social costs or public utility in the market price. Graphs of external effects are shown in Figures 5 and 6.

Introduction

At the current stage of development in the Russian Federation, a stable and efficient market economy is still at the stage of formation. The market is a way of interaction between producers and consumers, based on a decentralized, impersonal mechanism of price signals.

From this definition, we can conclude that the market in general is a self-regulating institution that itself sets the price and regulates supply and demand. In theory, the market itself should also cope with crises, but in reality it is not always able to perform this function. This is called the market fiasco.

The subject of the course work: consideration of one of the reasons for the manifestation of market failures - external externalities, in addition to state and non-state, contained in the Coase theorem, methods for solving this problem.

The topic “Fiasco of the market” is relevant, since in a modern market economy one can often observe market failures, it should also be added that external effects increase due to industrial production, however, government intervention increases the marginal costs of producers, which often causes market monopolization.

The failure of the market results in a market failure. For example, a violation of the information function is the cause of uneven distribution of resources, externalities are the result of a violation of the pricing function, and in the aggregate, all this leads to a failure in the regulatory function, which develops into market failure.

I set myself the goal of considering in this term paper the problem of externalities, their impact on the market and ways to deal with them, both government and non-government, based on the Coase theorem.

When writing the work, the following tasks were set:

· Consider the market fiasco: causes, shortcomings, consequences, ways to prevent and overcome;

· Consider external effects: types, disadvantages, consequences;

· Analyze the Coase theorem: its theoretical and practical significance;

· Consider methods of dealing with external externalities: state and non-state methods, the Coase theorem.

The structure of the work is divided into an introduction, three chapters and a conclusion. The introduction shows the relevance of the issue raised, determines the degree of scientific development of the problem, its object, goals and objectives. The first chapter reveals the concept of market fiasco, talks about negative and positive externalities, as well as their consequences. The second chapter discusses the theoretical and practical implications of the Coase theorem. The third chapter deals with methods of regulating externalities, state and non-state. In conclusion, the results of the study are summarized and the final conclusions on the topic of the study are summarized.

Chapter 1. Externalities as a manifestation of the market fiasco

.1 Market fiasco

A market fiasco is a market situation in which the market equilibrium is not Pareto efficient. Pareto optimality is such a state of the system in which the value of each particular indicator characterizing the system cannot be improved without worsening others.

Observations and theorizing of the real economy have shown that the prerequisites required to achieve an effective reality can be easily violated, for this reason, modern economic science is increasingly studying the situation associated with the fiasco of the market. The reasons for such a great interest in this topic are as follows:

· this is the most common situation in the real world (as opposed to modern competition, for example)

· this is a more difficult situation to study, therefore more interesting.

A market fiasco is a situation that cannot be resolved by invisible hand regulation (for example, environmental pollution). Failures usually involve government regulation of the economy in order to eliminate the negative effects of a pure market mechanism.

However, some economists believe that the market fiasco does not really exist and the problem is solved by clearly fixing the ownership of resources.

In neoclassical theory, there are five main causes of market failures, i.e. a situation in which the market fails to coordinate economic choice processes in a way that ensures the efficient use of resources:

.monopoly power

.uncertainty and risk

.public goods

.incompleteness and asymmetry of information

.externalities

The monopolization of the economy has such negative consequences as: the emergence of a shortage of goods, overpricing, the inability of average costs to reach a minimum, the appearance of a "dead loss". It is impossible to solve the problem of monopolization solely with the help of market methods. And it is precisely the fight against monopolization, the protection of competition that are the tasks of the state. It should be noted that in economically developed countries antimonopoly legislation has been developed, which limits the ability of unfair competition.

Economists are also familiar with the phenomenon of adverse selection. Private companies have the right to refuse insurance certain types risk due to asymmetric information (for example, those who want to insure their health have more information than those who provide insurance services).

The state, by controlling the quality of goods and services, disseminating the necessary information to consumers, as well as preventing the dissemination of misleading advertising, etc., can partially eliminate information asymmetry and uncertainty. In addition, it has great importance legislation in the field of consumer protection (sanctions are taken against the sale of low-quality products, the provision of false information about the activities of the company, etc.). The state, providing consumers with certain information about the quality of goods, about the degree of risks in the areas of investment and insurance, etc., creates a public good, or in other words, information that all economic entities can use for free.

As mentioned above, public goods are also the source of the market failure. All goods and services have two properties in common: the property of exclusion (the person who makes the offer can decide who to offer his product and who not) and the property of rivalry (the use of a unit of goods by one person limits the ability of others to use the same product) However, there is and goods that do not have either property. Such goods are called public goods. Public goods cannot be provided to just one person (police services), but once provided to one person, they can be provided to others at little cost (national defense, police services, space program, city street maintenance, etc.). Private firms have great difficulty in selling products which, already presented to one customer, are made available to others at no extra cost. Imagine situations where someone decides to install a private missile defense system on the house in which he lives, but then it makes no sense for other neighbors to install the same missile defense, since they are already protected. As a result, these same neighbors become "stowaways", and whoever decides to establish a defense will be forced to pay a much larger share, otherwise the entire defense system will fail.

The "stowaway" problem, which usually arises in cases of public goods, means that only the government can provide these goods, otherwise they may not be provided at all.

The same cause of market failure as externalities will be discussed by me in more detail in the next paragraph.

1.2 Negative and positive externalities

External effects (externalities)are the costs or benefits of market transactions that are not reflected in prices. The effects are called "external", as they relate not only to the economic agents involved in the transaction, but also to third parties. Externalities in a market economy occur when an individual's or firm's action affects the welfare of another individual or firm in such a way that the effect is not reflected in the market price system.

Externalities can appear either in consumption or in production. An externality is associated with consumption if it affects the well-being of other individuals by consuming some good of one individual; an effect is related to production if it affects the production of a certain product on the ability to produce other firms.

Externalities can be both positive and negative. It is easy to understand that the positive ones are with benefits for third parties, and the negative effects are associated with costs. Thus, it is worth noting that externalities show the difference between social and frequent costs.

MSC=MPC+MEC,

MSC - marginal social cost;

MPC - marginal private cost;

MEC - marginal external cost.

.2.1 Negative externality

Negative effects can arise if the activities of one economic entity cause costs to others.

Examples of such effects include: repair work after six o'clock in the evening, the noise of which disturbs neighbors, or environmental pollution from cars, factories, etc. All these are examples of negative externalities associated with consumption. To give an example of negative production-related externalities, consider a fishery firm that is concerned about the amount of pollutants released into the waters in which it fishes and detrimental to its catch. Let's consider some example in more detail.

An iron smelter emits carbon dioxide into the atmosphere. Let carbon dioxide emissions into the atmosphere be proportional to the volume of production. It follows from this that if the volume of iron smelting increases, then the volume of environmental pollution also increases. But since the factory does nothing to eliminate the pollution of nature, its marginal private costs are lower than the marginal social costs, since the factory does not incur additional costs for environmental protection. The consequence of this is the fact that the amount of pig iron produced exceeds the effective output. Without additional costs for nature protection, the amount of output is Q 1tons of pig iron at price P 1. Point E 1 is the market equilibrium point at which supply equal to marginal private cost MPC intersects the demand curve equal to marginal social benefit MSB, i.e. MPC=MSB.

In addition, marginal social cost is equal to the sum of marginal private cost plus marginal external cost. Therefore, if it were possible to turn external costs into internal ones, i.e. bring marginal private cost closer to marginal social cost, the effective output would be reduced to Q 2 when the price rises to P 2. Then at point E 2 marginal social benefits would equal marginal social costs MSB=MSC.

It should also be noted that at point E 2are not eliminated consequences of environmental pollution completely (since in this case the emission of carbon dioxide is proportional to the volume of production, but the volume of iron smelting at point Q 2 is not zero at all). However, pay attention to the fact that the damage from pollution is reduced. Efficiency losses associated with the fact that the marginal private costs were lower than the marginal social costs, shows the triangle AE 1E 2. From the foregoing, we can conclude that in the presence of a negative externality, an economic good is sold and bought in a larger volume compared to the effective one, i.e. there is an overproduction of goods and services with a negative externality.

problem foreign market coase

1.2.2 Positive externality

Positive externalities arise when the activities of one economic agent bring benefits to others.

MSB=MPB+MEB,

MSB - marginal social benefit;

MPB - marginal private benefit;

MEB - marginal external benefit.

A positive externality associated with consumption is, for example, a person who enjoys looking at the flowers in a neighbor's garden, or a loser who enjoys his first five. Speaking of positive externalities in production, one can cite an example of an apple orchard located next to a beekeeper; mutual positive extranals are observed here; The production of each firm positively affects the production capabilities of the other firm.

In order to have a clearer idea of ​​positive externalities, we can give the following example. The light bulb stopped burning in the entrance, and therefore there were inconveniences for people living in this entrance. One of the neighbors decided to change a non-working light bulb. Thus, he benefited not only himself, but also other neighbors.

However best example positive externalities is education. A person receives education for self-development, but he does not think that his desire to develop brings certain benefits, benefits to society. An individual, making a decision on education, correlates the costs of a good education and the benefits that he can get as a result. It is worth noting that investment in human capital may be less than optimal for society.

At the intersection point of marginal private benefits and marginal social costs, market equilibrium is established E 1: MPB=MSC.

At the same time, marginal social benefits are greater than marginal private benefits by the amount of marginal external benefits. Therefore, an equilibrium efficient for society would be reached at the point of intersection of marginal social benefits and costs, i.e. at point E 2.

Efficiency increases by the area of ​​the triangle AE 1E 2. We come to the conclusion that in the presence of a positive externality, an economic good is sold and bought in a smaller volume compared to the effective one, i.e. there is underproduction of goods and services with positive externalities.

1.3 Consequences of externalities

.3.1 Consequences of negative externalities in production

Negative externalities in production are associated with the appearance of external marginal costs. (MONTH), or external limiting damage (MD), which increases the social marginal cost of producing a product (SMC)compared to private (PMC).

The costs and benefits of this production are plotted on the vertical axis. Curve SMVis the market demand curve for X, which shows the marginal benefit to consumers from the production of each unit of product X. The curve RMSrepresents the private marginal cost resulting from the horizontal summation of the private marginal costs of competitive manufacturing firms X, and which shows the payments to factors of production. The production of polluting emissions is a by-product of the production of product X. Curve MDrepresents the marginal damage from pollution, this curve increases with an increase in the output of X. Producers seeking to maximize profits will produce a good in the amount of X 1, taking into account the condition PMS=SMB, which is performed at point E 1However, if you look at all this from the point of view of society, then the output of the product can increase as long as the marginal benefit to society exceeds the marginal cost to society. Marginal cost to society (SMC)include resource costs (RMS)and marginal pollution damage (MD). RMSAnd MDare summed vertically for each output quantity. Release in volume X*is Pareto optimal and satisfies the condition SMC=SMB, performed at the point E.

With the help of these considerations, a number of conclusions can be drawn that are important for the theory of regulation:

.In the presence of externalities, one should not expect Pareto-optimal allocation of public resources from a competitive market mechanism. If the production of a product is associated with a negative externality, its price (P1 ) too small, and release (X1 ) too large compared to socially effective ( X*and P*).

.This model shows not only the efficiency of output, which can be increased by reducing X1 before X*, but also makes it possible to measure the benefit to society from the reduction. In this figure, the social gain from reducing output from X1 before X*measured by the area of ​​a triangle E1 EF.

.From this model it is clear that it is not beneficial for society to have a zero level of pollution. After all, zero pollution is a consequence of zero output, since any production is associated with any environmental pollution. In order to determine the "proper" level of pollution, it is necessary to equalize the associated gains and losses, which, as a rule, take place at any positive level of pollution.

.To apply this model in practice, the state must know the real forms of demand and cost curves, and the curve of marginal damage from pollution, which causes great difficulty; many difficult questions arise (eg what counts as pollution, what is the cost of damage). Specialists of various profiles are required in order to get answers to these questions.

However, based on this model, it is possible to offer a number of alternative solutions to negative externalities, which I will discuss in Chapter 3 in paragraph 3.2.

Everything said about negative externalities in production associated with external costs has an analogy with positive externalities in production associated with external benefits. In this case, private costs are partially returned to society through the external benefit from a positive externality. Hence the curve SMCwill lie under the curve PMC, obtained by subtracting from it vertically the external marginal benefit curve (MB). Therefore, it makes sense to underestimate the actual output and inflate the price in comparison with the socially optimal level.

.3.3 Consequences of positive externalities in consumption

The implications of positive externalities in consumption for efficiency in allocating public resources are depicted in Figure 4.

E0 - the point of market equilibrium formed by the intersection of private marginal benefit curves ( PMB)and total marginal cost (MC), upon release Q0 and P0 . However, it should be noted that the consumption of such a good is associated with an additional need for others (for example, participation in charity), not taken into account the market demand for it and reflected by the external marginal benefit curve (MB). Summation result MBvertical with curve PMB, namely the curve SMB- curve of social marginal benefit, shown in Figure 4. Point E*- intersection of total marginal cost curves (MC)and social marginal benefit (SMB). This point determines the socially optimal levels of output and prices for a given good. Since in such a situation this curve is above the curve PMB, socially optimal release Q*and price P*more than in a situation where there is no external effect.

Chapter 2

.1 Theoretical application of the Coase theorem

The Coase theorem carries "binding" behavior: "In avoiding harm to B, we inflict harm on A. The real question to be decided is, should A be allowed to harm B, or should B be allowed to harm A? The problem is to avoid more serious damage.”

The answer cannot be given until it is possible to determine the importance of what is finally gained and the importance of what had to be sacrificed for the benefit gained.

Analyzing the problems of social costs, Ronald Coase concluded that if the property rights of all parties are carefully defined, and transaction costs are zero, the end result (maximizing the value of production) does not depend on changes in the distribution of property rights (apart from the income effect). This conclusion J. Stigler called "Coase's theorem" (Coase theorem)and expressed it thus: "In conditions of perfect competition, private and social costs are equal to zero."

When Ronald Coase compared a pricing system that includes liability for damages from negative externalities with a pricing system that does not include such liability, he came to the paradoxical conclusion that if the participants can agree themselves and the costs of such negotiations are negligible are small (transaction costs are equal to zero), then in both cases, under conditions of perfect competition, the maximum possible result is achieved, maximizing the value of production.

Transaction costs are zero when:

· All market participants have access to the same information; new information everyone will know instantly; everyone understands each other without words.

· All participants have agreed interests and expectations; coordination occurs instantly when conditions change; opportunistic behavior is excluded.

· Each product or resource has a set of interchangeable products.

Coase himself gave the following example. Imagine that next to the cattle ranch, where the cattleman raises cattle, there is an agricultural farm on which the farmer grows wheat. Cows can enter a farmer's fields and cause damage to crops. We are talking about external effects. There is every reason for government intervention to resolve this problem. But Coase believes that everything can be decided without the help of the state.

Suppose the optimal production conditions, when participants have the opportunity to achieve maximum welfare, are as follows: the rancher has 10 cows, and the farmer harvests 10 quintals of grain. But the cattleman decides to buy another cow. The net income from the eleventh cow is $50. And since it will lead to excess. The optimal load on the pasture, immediately there will be a threat to the farmer. An extra cow would result in a loss of one centner of grain, but the same extra cow would give the farmer $60 in net income.

Two options can be considered. First, the farmer has the right to prevent injury. Then he will demand compensation from the cattle breeder, which will be no less than 60 dollars. And the profit from 11 cows is only $50. From this we can conclude that the cattle breeder will refuse an additional cow and the structure of production will not change.

The second option: the rancher has the right not to be liable for damage. However, the landowner can offer the rancher compensation for abandoning the eleventh cow. According to the Coase theorem, the amount of the ransom will lie in the range from 50 to 60 dollars, that is, in the range from the rancher's profit from an additional cow to the farmer's profit from a tenth centner of grain. In this situation, both participants will benefit, the cattle breeder will refuse an additional "non-optimal" cow, and the production structure will not change again.

Coase comes to the conclusion that both in the case when the farmer can demand compensation for the damage caused from the cattle breeder, and in the case when the rancher has the right not to be liable for damage, i.e. with any distribution of property rights, the rights pass to the party that values ​​them higher (in this case, to the farmer), and the structure of production remains unchanged and efficient. “If all rights were clearly defined and prescribed, if transaction costs were zero, if people agreed to adhere firmly to the results of voluntary exchange, then there would be no externalities,” as Coase himself writes. Under such conditions, there would be no "market failures" and there would be no reason for the state to intervene to correct the market mechanism. Under conditions of zero transaction costs, the market itself is able to cope with any external effects.

With zero transaction costs, both the pastoralist and the farmer will strive to increase the value of production, because each of them will receive a certain income from this. But the desired result may not be achieved when transaction costs are taken into account. The fact is that the expected benefits from the conclusion of the transaction may be exceeded by the high cost of obtaining the necessary information, negotiating and litigation. It should also be taken into account that consumer preferences for assessing damage will vary significantly, for example, one believes that the damage was small, while the other is sure that the damage was huge. To account for these differences, a clause about the income effect was introduced into the formulation of the Coase theorem.

This theorem is true only for a limited number of participants (two or three). If the number of participants in the transaction increases, then transaction costs increase, therefore, the assumption of their zero value is not correct. It is impossible not to note the fact that Ronald Coase proves the importance of transaction costs "by contradiction".

2.2 Practical implications of the Coase theorem

In the middle of the 20th century, Coase's attention was drawn to the problem of state monopoly and control in such industries as television and radio communications and the postal service. In one of his articles, the economist proposed the idea of ​​creating a "broadcasting" market. Many believed that if the state did not, for example, control the broadcasting air, then chaos would come, radio stations would broadcast on the same waves in order to create obstacles for competitors. However, Ronald Coase was not so sure about this. He believed that the real reason for any problems in the radio was the lack of private property rights to electromagnetic waves of different frequencies. If such rights were established, state control would no longer be required, since an efficient market would emerge.

In his article "The Federal Communications Commission," he proposed the following: "The Federal Commission organizes an auction for the sale of broadcasting rights on certain frequencies, transferring the proceeds cash to the state treasury, and the broadcasters will be subject to market discipline in the future.” That is, Coase's idea was to establish property rights and create a market for physically unobservable objects (electromagnetic oscillations, for example). Coase wrote about this in more detail in his article "The Problem of Social Costs", as many of his colleagues found it difficult to perceive his thoughts. In this article, he formulated his theorem.

R. Coase was against the mainstream wherever possible and against the desire of economic entities to establish monopoly power, which are one of the reasons for market failures. Negative externalities play a very large role in the life of society, and in order to overcome them, government intervention is called for. However, Coase proved that economic actors are quite capable of settling mutual claims about externalities themselves, since government intervention is often more expensive than the operation of the market mechanism itself.

For the practical application of the Coase theorem, it is worth remembering several important conclusions that follow from it:

.First, the source of externalities is unestablished property rights. It is no coincidence that resources (air, water) have become the main cause of conflicts due to externalities, since previously there were no property rights on them.

.Secondly, externalities are mutual. For example, industrial pollution of a river harms residents of nearby villages, but a ban on pollution results in losses for the owner and, consequently, for the consumer. Coase believed that from an economic point of view, one should think not about who is to blame, but about how to minimize the amount of cumulative losses, and this can be solved using the optimal specification of property rights.

.Third, transaction costs are essential to the successful operation of the market. The market itself is able to eliminate externalities without intervention, if transaction costs are low and property rights are clearly established, the stakeholders will independently come to a rational solution. It doesn't matter who exactly owns the property. The participant who is able to get the greatest benefit from the ownership of the right will redeem it from the one for whom it is of less value. It doesn't matter to the market who owns the resource, what matters to the market is that someone owns it. Then it will be possible to make market transactions with this resource.

There will be no market failures unless the law prohibits contracting over externalities, in which case the government has no reason to intervene to correct the market mechanism. The most important issue is the existence of property rights and their clear distinction, who will own these rights does not matter.

Chapter 3

.1 Solving the problem of externalities without state intervention

According to the Coase theorem, the private sector is quite capable of solving the problems of externalities on its own, in cases where transaction costs are not very high, individuals can reach agreement among themselves.

The problem of externalities in some situations can be solved without outside interference in the course of the functioning of the market mechanism itself. In order to solve the problem of externalities, economic agents involved in such situations should be encouraged to perform the following actions:

· merging or merging recipients of external effects. Thus, the former externalities will become internal, and there will be a necessary adjustment in the volumes and technologies of production, the corresponding benefits

· drawing up an individual agreement. According to the Coase theorem, positive and negative externalities do not need government assistance when:

.clearly defined property rights

.few subjects involved

.transaction value is quite low

In such circumstances, the state should encourage agreements between the parties concerned. This agreement gives economic actors the opportunity through negotiations to find an acceptable solution to the problem. Ownership sets the price of a by-product, creating an opportunity cost for both parties, so they need to find ways to solve the problem.

Imagine that the owner of a large area of ​​forest is going to conclude a contract to clear his land of old coniferous trees. But the problem is that there is a lake in the forest, on the shore of which the resort is located. The land where the resort is located belongs to its owner. The extraordinary beauty of this place attracts many tourists from different countries. The question is, should the government of the region intervene in this situation, or are the subjects able to find a solution to the problem themselves?

According to the Coase theorem, the owners may well resolve this issue without outside intervention. If one of the parties has the right to the subject of the dispute, then they have an incentive to agree on an acceptable solution. In this example, the owner of the forest area has title to the land that is to be cleared. Therefore, the resort owner should seek to reach an agreement with the forest owner in order to reduce the impact of the cleanup. It is obvious that after the felling, visits to the resort will decrease, and the income of the resort owner will decrease. less obvious, but also economically important, is the incentive that encourages the forest owner to take advantage of this opportunity and enter into an agreement with the resort owner. This is because the owner of the forest area in the event of deforestation may not receive the compensation that he could expect from the owner of the resort for agreeing not to cut down the forests. Of course, the resort owner would be willing to pay the forest owner a certain amount in order to eliminate or at least minimize the side costs, or the resort owner would prefer to buy the site at a relatively high price in order to prevent logging. Indeed, from the point of view of the owner of the resort, the payment for the prevention of deforestation, or the purchase price that exceeds the value of the land together with the forest, is the cost of deforestation.

Let's consider another example of solving the problem of externalities without the intervention of a third party (state). Suppose we are talking about two firms whose factories are located along the same river. The plant of the firm that produces product X is located downstream of the plant of the firm that produces Y. Pollutant emissions from production at the second plant have a negative externality on the production of good X. Both products are produced only by the labor factor (L). Firms are price takers, and in the markets for finished products (P Y are the market prices of their products), and in the factor market (w is the market price of labor). Suppose the production function of the polluting firm has the form:

Y=g(L Y ),

where L Y is the amount of labor that produces product Y.

The production function of a firm suffering from a negative externality is:

X=f(L X ;Y),

where L X - the amount of labor producing product X. The form of this function makes it clear that the output of product X depends, in addition to the amount of labor hired by the firm, and on the level of output of product Y (the introduction of the variable Y into the equation through a semicolon emphasizes the fact that the influence of this variable on the production of X is autonomous, i.e. cannot be controlled by the firm producing product X).

Thus, the market mechanism will equalize the private marginal returns of the factor, but it is necessary to satisfy the conditions of equality of the social marginal returns of the factor in order for the equilibrium outcome to be Pareto efficient:

SMPR=SMPR,

which, if there is no external externality, is achieved automatically due to the coincidence of the private and public marginal returns of the factor for each firm. In our example, there is no such match for product Y, since there is an externality in production. If the firm hires an extra unit of labor, it can get more of this product, but at the same time it produces more pollution, which will cause a reduction in the output of good X.

The second term of the sum shows the impact that hiring additional labor that produces product Y has on the profitability of producing product X. This impact is negative in this case: .

Therefore, the social marginal profitability of labor in production X is less than the social marginal profitability in production Y. Therefore, if some workers are moved from production Y to production X, then it will be possible to increase the value of output to society.

3.2 State regulation methods

In this paragraph, I would like to consider regulatory measures that are based on the recommendations of neoclassical theory and which are aimed at eliminating market failures due to externalities.

To reduce the overproduction of goods and services with negative externalities and to fill the underproduction of goods and services with positive externalities, the transformation of external effects into internal ones is required. Transformation of external effects into internal (internalization of an externality)can be achieved by bringing marginal private costs (and, accordingly, benefits) closer to marginal social costs (benefits). As a solution to this problem, A. S. Pigou suggested using corrective taxes and subsidies.

.2.1 Pigou corrective taxes and subsidies

BUTThe English economist Arthur Sisel Pigou laid the foundations for the theory of externalities and was the first to propose the use of subsidies and taxes as a means of correcting discrepancies between private and social marginal costs.

"The Pigou tax is a tax levied on each unit of input by polluting firms at an amount just equal to the marginal damage from pollution at an effective output." This tax in the figure is represented by the segment aE, which measures the marginal damage from pollution at the release of x*, and the area of ​​the rectangle abcE represents the tax collection from it. If such a tax is imposed on producers of goods x, then their private marginal costs will increase to the level of pmc + ae, and they will choose the volume of output in accordance with the condition pmc + ae = smb, i.e. X*.

Pigou taxes "work by inviting polluting firms to avoid tax payments by exploiting a loophole specially left for this - reducing emissions." This is where their advantage lies. However, Pigou's theorem is ideal only in theory, but in practice it is very difficult to solve the problem of pollution with the help of Pingu taxes, because for this you need to know the exact size of the marginal damage from pollution. It is worth noting that the need to know how much pollution occurs complicates any attempt to implement pollution regulation through tax measures.

"The Piguiu subsidy is a subsidy paid to polluting firms at the same rate as the Piguio tax for each unit of output they do not produce." In Figure 5, this subsidy is represented by the same bar ae that measures the marginal pollution loss of x* output, and the area of ​​the rectangle aeln represents the total payment of the subsidy. If the producers of good x are given such a subsidy, they will produce good x at an effective quantity x*: for, as in the case of the Pigouvian tax, the alternative total private marginal cost curve, taking into account the non-subsidy for each unit of x produced, is represented by the curve pmc + ae.

Pigou subsidies have disadvantages that reduce their effectiveness, in addition to the disadvantages that Pigou taxes have:

.They are applicable only in the short run for a certain number of firms in the industry. New firms may enter the industry in the long run, attracted by the possible increase in profits through subsidies, but as a result, the amount of pollution that the industry produces may increase.

.Taxes collected in other areas of the economy are a source of funds to pay subsidies, but any taxation violates Pareto efficiency, and the associated losses to society can be much greater than the losses from pollution.

.2.2 Pollution Standards and Pollution Charges

Under this system, the state first determines an acceptable amount of pollution, and only then charges the agent a pollution fee in order to reduce pollution reduction to an acceptable level. This system and Pigou's system of taxes and subsidies are not equivalent. Under the Pigou system, the state can establish subsidies that would guarantee a reduction in polluting output, knowing the size of the damage caused by external effects. Under the first system, the state sets a fee that, as it believes, will force agents to reduce the level of pollution again to an acceptable level.

The operation of the system of standards and pollution charges for two or more competitive polluters can be seen using the graphic illustration in Figure 6.

In this figure, the costs of pollution abatement are plotted along the vertical axis, and the amount of pollution abatement is plotted along the horizontal axis (a large amount of this reduction means less pollution). Msa and Msb are the marginal abatement cost curves for firms a and b. Reducing pollution on a large scale is more costly than on a small scale, as evidenced by the upward slope of the curves. Firm c has higher costs than firm a for each level of pollution abatement. This is because Firm A has a new plant equipped with a pollution abatement system, while Firm B has an old plant with an outdated pollution abatement system. The horizontal line Ce represents the government-imposed pollution charge, as it is a constant for all pollution abatement levels. By setting this charge, each firm reduces its polluting emissions to a level that satisfies the condition that the marginal cost of pollution reduction is equal to the pollution charge, so that in equilibrium both firms will have equal costs. Firm a will reduce pollution more than b, because firm b has the indicated costs everywhere more than firm a.

This system is more difficult to put into practice than the Pigou system. And in this system, the state needs to determine the exact amount of damage due to the externality, otherwise it will not be able to set the standard, after the state has to decide what the size of the pollution charge will be. It is required to know the cost functions of all firms that cause pollution in order to set the fee at the optimal level. But this is hardly possible. The system can only work by trial and error. If damage charges are set too low, pollution damages will exceed the socially optimal; if pollution charges are too high, then firms will cut output severely and therefore reduce pollution more than is required. In fact, this method of regulating the optimal pollution charge is quite realistic, but it will be very expensive for the state and will be very inconvenient to use.

Pollution standards are used in many countries around the world. For example, in the United States, the Environmental Protection Agency monitors compliance with these standards. If the standards set by government agencies are exceeded, then this entails criminal penalties or a large fine. And, for example, Germany uses a system whereby a polluting agent is charged for emissions. The experience of this country shows that in this way the amount of harmful emissions is reduced, but, unfortunately, there is no complete certainty that such a system will not violate pollution standards.

This method of regulation requires the creation of a new market - the market for pollution permits. The state sets the size of this market based on the level of pollution that will be considered acceptable. The state puts up for sale to firms a number of pollution permits, each permit allows a certain amount of emissions, in the aggregate equivalent to an acceptable level of pollution. Emissions are prohibited without obtaining such a permit.

The state sells permits through an auction system: firms that are willing to pay a high price for them receive them. Clearly, pollution permits will be bought by firms with high marginal abatement costs. Reducing pollution to government-restricted levels will come from reducing emissions by firms that have lower marginal cost of abatement, which ensures the cheapest way for society to reduce pollution.

However, it is theoretically possible to understand that large firms will be able to buy pollution permits in amounts that will exceed the needs of minimizing their own costs in order to keep new competitors out of this market.

The practice of selling pollution permits is more flexible than the theoretical scheme that I described above. The state issues a certain number of pollution permits, while limiting the total emissions to the number of permits. By buying or selling emission permits, each polluter will be able to choose the amount of emissions it produces. This flexible system allows agents that consider it too costly to cut emissions to buy permits from agents that can reduce pollution at a lower cost.

Thus, since the implementation of such a reduction at the expense of agents that can do it at the lowest cost is guaranteed, minimization of the costs of reducing emissions in a given amount is ensured. Every polluting agent that is able to reduce pollution at a cost below the market price of an emission permit profits by selling unwanted permits on the market. In the same way, an agent whose market price of emission permits is lower than the costs of reducing these same emissions will consider it more profitable to produce pollution in excess of the imputed one, covering the difference by purchasing additional permits on the market.

In the end, the marginal cost of abatement per unit will be equal to the price of a permit to emit a unit of a pollutant, provided there is competition in the market for those permits.

Conclusion

So, in my work, I considered the problem of externalities as a manifestation of the fiasco of the market, analyzed the Coase theorem as a way to solve the issue of externalities, and also considered the state methods of dealing with the affected problem.

It cannot be argued that market failure is a negative phenomenon. Market efficiency is reduced due to uneven distribution of resources, the same reason leads to insolvency economic system. Therefore, it is necessary to deal with market failures.

According to Ronald Coase, externalities are caused by vaguely defined property rights (especially when the problem concerns public goods). Therefore, according to Coase, it is necessary to formulate property rights in detail, carefully check the relevant documentation.

Some important conclusions can be drawn from the Coase theorem, which I already talked about a little earlier in my work and which the economist himself did not consider:

.First, all the same property rights. studying this topic, I came to the conclusion that the problem of externalities is mainly related to resources that never had property rights, such as water or air.

.The boundaries and conditions of market activity determine transaction costs. If they are positive, then property rights are no longer considered neutral and begin to influence the structure and scale of production.

.Coase did not blame the market for externalities, as he was convinced that the problem of externalities lay in diluted property rights. According to the economist, the state is to blame, which cannot guarantee the definition of clear rights. It is also impossible not to say that the state of the environment has deteriorated due to the insufficient development of private property.

.Coase was sure that the state should not intervene and try to eliminate external effects. The fact is that such intervention will entail positive transaction costs, so one cannot be completely sure that government intervention will be able to completely prevent the market fiasco.

Ronald Coase was faced with the task of showing the real situation in the economy to modern economists, in cases of always positive transaction costs. However, the attempt failed.

In my opinion, with the help of the Coase theorem it would be possible to partially solve the problem of externalities. Of course, it is not worth saying that there will be a situation in which positive transaction costs will be zero, but I believe that clear property rights and willingness to cooperate could reduce them as much as possible, such measures would serve as a step towards internalizing externalities. But, as I said, the Coase theorem is true only with a small number of participants, otherwise, state intervention is necessary.

I am sure that a rational combination of both ways could give great results and reduce externalities to a minimum. Also, I support the market for pollution rights more than the other two measures, because I think if the use of pollution rights is strictly controlled, externalities will tend to zero, as will transaction costs.

Lecture 4 Fiasco (defects, failures) of the market

4.1 Externalities

4.2 Inefficiencies in the production of public goods

4.3 Information asymmetry. Cyclical development of markets

4.4 Transaction costs

The market mechanism is not always able to automatically come to optimality. There are problems that the market mechanism is not designed to solve, and therefore is not able to solve them effectively. Such cases, when the market allocates resources inefficiently, are called market failures or fiascos.

Market fiascos are:

1) externalities;

2) inefficiency in the production of public goods;

3) information asymmetry;

4) cyclical development of markets;

5) transaction costs

6) the trend of monopolization of markets

The operation of the market mechanism may generate externalities, or externalities. Under external effect implies the impact of a transaction or economic activity on third parties, not taken into account in the contract. This impact manifests itself in the form of costs or benefits not reflected in the market price. Externalities, or external effects, are divided into positive, i.e. bringing additional benefits to third parties, or negative, bringing additional costs to third parties. For example, production that causes damage environment and other producers, generates negative externalities. Health services, education, irrigation, landscaping, etc. generate positive externalities.

Externalities disrupt the efficiency of the market mechanism. Negative externalities in a competitive market give rise to overproduction in comparison with the socially effective volume of production (a manufacturer, refusing to use expensive environmentally friendly technologies, can produce more goods. However, using the dirty production cycle, he transfers his missed costs- expensive environmentally friendly technologies were not purchased - for third parties who, through the fault of the manufacturer, have costs associated with diseases, the purchase of medicines). With positive externalities, on the contrary, there are cases of underproduction of goods and services (the company, carrying out the improvement of the adjacent territory - landscaping, laying paving slabs, fountains and artificial waterfalls - diverts part of the resources from the actual production, which leads to a decrease in the volume of goods produced, a decrease in the level of profit ).

How to handle the problem of inefficiency created by externalities? What compensates society for the damage from negative externalities, and the creator of positive effects for the lost benefit? The solution of these problems, as it was assumed before the wide recognition of R. Coase's ideas, is assumed by the state, using its traditional tools - taxes and subsidies. If, to eliminate negative externalities, the government introduces a tax withholding (or forces the producer to buy a license or install cleaning equipment) in the amount of marginal external costs, then the internal costs of the producer will increase and bring output in line with the socially optimal. This approach is called internalization(from English. internal - interior) external effects.

In order to internalize the positive externality, the government uses incentive subsidies. They are paid in the amount of marginal external utility and transform it into internal, increasing the marginal utility of the producer. The subsidized producer will expand output to a socially efficient level.

However, if the property rights to resources are clearly defined (specified) and observed, including the possibility of free exchange of these rights, then the market will be able to resolve the problem of externalities on its own, without the participation of the state, by buying and selling these rights. This idea was put forward by R. Coase, who studied the relationship between externalities, property rights and efficiency, which led to the creation of a theorem (1960), named after the scientist. Coase theorem states that externalities can be internalized by clearly specifying ownership of resources and freely exchanging those rights. The theorem is satisfied only with such a number of participants in the exchange of rights, in which the transaction costs of negotiating the transfer of property rights do not exceed the benefits from the results of the exchange. In other words, the number of participants in the negotiation should not be too large (suppose you would like to negotiate an exchange of clean air rights with all car owners passing on the highway near your home; the transaction costs of such negotiations will be prohibitively high).

The Coase theorem helps to understand the meaning of the internalization of externalities. For example, two factories use the same resource, say a river, for mutually exclusive purposes: one for waste disposal, the other for fish farming. It does not matter which of them was the first to receive the right to use the river. What is important is the very achievement of an agreement on compensation: the one who receives the prize pays for the damage caused to the other. Then the output volumes and profit margins of both plants will be adjusted. a factory that pollutes the river will cut down on excess production, compensating for lost profits to the affected fish factory. The latter, due to compensation, will be able to increase the output of fish products compared to the pre-contractual situation.

The main conclusion of the Coase theorem is that external effects arise only in the case of vagueness, uncertainty of ownership of resources. Where a clear definition of rights is possible, the problem of externalities is addressed by voluntary negotiations on mutually beneficial sale of these rights. In the end, the rights will go to those who can manage them more effectively. The role of the state is reduced only to establishing the "rules of the game" in the exchange of ownership of resources.

The condition for the fulfillment of the Coase theorem (limiting the number of participants by the value of the transaction costs of negotiations, which should not exceed the benefits from the result of the exchange of rights) is a general condition for the efficient operation of the market mechanism. It makes it possible to determine the volume of demand and determine the market price of products, which is always feasible for private goods, when the seller contacts each consumer.

However, there is such a category of goods and services for which it is either impossible or unprofitable to identify demand and determine the optimal price by the market method due to the extremely high costs of such identification. . We are talking about public goods and services, or public goods.

Public Goods are called, the main characteristic of which is non-exclusivity from consumption and noncompetitiveness in consumption. Those public goods and services that fully meet these properties are called pure public goods. The classic example of a pure public good is national defense, city lighting, lighthouses, scientific knowledge (with free education).

Non-excludability from consumption means that the very nature of a pure public good is such that it is impossible to separate "payers" from "non-payers". And it's not just that such benefits are indivisible (national defense, street lighting, etc.). There are quite a lot of indivisible blessings in our life: a theatrical performance, a discotheque, public transport. But in all the examples given, there is no Problems"stowaway"i.e. situations where a person enjoys a benefit without paying for it. You can't go to a disco, subway or theater without buying a ticket. But the property of non-excludability from consumption suggests that the very creation of public goods (and not their purchase, in contrast to private goods) generates positive externalities. However, it is impossible to resolve the problem under consideration through negotiations, i.e. in a private manner, since the conditions of the Coase theorem are not met. Due to the huge number of participants, the transaction costs of identifying who pays and who enjoys public goods for free are too high, which gives rise to the free rider problem. That's why market production of public goods is inefficient.

Let us assume that the national defense is financed by a group of certain individuals who seek to secure only themselves from an external enemy. However, the air defense system created, for example, cannot protect only the persons who financed this event. It protects all citizens of the country, including those who did not pay anything ("free riders") to build a defense capacity. The free rider problem does not capture the full amount of demand and undermines market incentives either to provide such goods or to provide them in a socially optimal amount.

Pure public goods are not competitive in consumption: an increase in the number of consumers does not reduce the utility of this good for others, therefore, the marginal cost of providing such goods is zero. For example, because the light of a beacon is used by another sea vessel, there is no decrease in the usefulness of lighting for other ships, and for each additional vessel passing, it is not necessary to build an additional lighthouse. We can say that non-rivalry is an extreme case of positive externalities.

So, for the production of public goods in the optimal amount, it is necessary to charge a fee from all citizens of the country, which can only be done by the state, which has the instruments of taxation and the mechanism of redistribution in the form state budget.

The market distribution mechanism is impartial, since it is based on the principle of equality of the marginal productivity of a resource to the marginal income from its use. It's a mechanism equitable distribution: each owner has an equal right to receive income in accordance with the productivity of the resource. However, the market distributes income only among those who participate in the mechanism of market competition, without affecting those who are outside it (for example, losers in the competition).

Market distribution - equal but unequal. Its participants have equal rights to receive income in proportion to their contribution, which is objectively unequal, since from birth everyone has different strengths, abilities, striving for work, etc. Equality should be understood as equality of opportunities (rights), and not equality of results. In a command economy, equality in distribution means receiving the same income, regardless of the contribution of forces, knowledge, money, etc.

The market copes with the tasks for which it is designed. It is impossible to speak about the fiasco of the market in cases that are outside the scope of the market mechanism. Therefore, the solution of social problems, first of all, providing the disabled part of the population with the right to a decent existence, namely, obtaining a certain income without corresponding factor costs, is the scope of another, non-market mechanism that the state has as an instrument of social regulation.

Another problem that distorts the operation of the market mechanism is asymmetric information under conditions of imperfect competition. Asymmetry refers to the uneven distribution of market information among market participants and this problem is generated by the monopolization of markets. Information asymmetry not only increases transaction costs, but can also lead to overproduction of some goods and underproduction of others. If the consumer has only partial information about the product and its quality, then, firstly, this will lead to the displacement of quality goods from the market, and, secondly, it generates internals(benefits or costs of the participants in the transaction, not reflected in the contract). For example, the producer's monopoly on information (the producer knows everything about his product, and the consumer only partially) makes it possible to reduce production costs due to product quality and expand the production of environmentally hazardous goods. Part of the producer's costs is transferred to the consumer and they become "internal" costs to the consumer, not stipulated by the terms of the transaction, that is, not reflected in the price. So, having bought a food product contaminated with radioactive elements, you will suffer from poor health, spend money on buying medicines, etc. The marginal utility of the product for the buyer decreases by the value of the internaly. The state can contribute to solving this problem by accumulating and providing market information, for example, by creating information centers, as well as establishing and protecting, through legislation, the right to receive complete and truthful information about a product.

A serious problem of the market is the cyclical nature of its development - the alternation of crises and economic upswings, that is, the movement from upswing to upswing through crises. During a crisis, the scope of the market mechanism narrows: employment decreases, incomes fall, losses grow, risks increase, incentives for production disappear. Separate markets may simply disappear during a deep and protracted crisis. In critical conditions, the state should just extend a saving hand to the markets, helping them survive, stabilize and modernize their products.

Transaction costs(transact - to conclude an agreement, to conduct business; transaction - doing business) - the costs associated with finding a counterparty, concluding a business contract with him and monitoring the fulfillment of the obligations undertaken by the other side of the contract (support of the contract). These costs are not associated with production, but with the costs associated with it. The term was first introduced into economics by an American economist, laureate Nobel Prize Ronald Coase in The Nature of the Firm (1937).

Types of transaction costs

1. Information search costs - the costs of searching for counterparties of business transactions and finding the most favorable terms of sale. Before the deal economic entity collects information about the counterparty. Prices for the same good can vary significantly in different shopping malls, city districts, regions. The costs of searching for information may be associated with visiting stores, working with catalogs of goods and services, visiting the websites of trade organizations.

2. Costs of concluding a business agreement (contract)– associated with time costs, negotiations, costs for the legal execution of the contract, transportation costs, payment for the restaurant, saunas, hotel expenses, etc.

For example, you are about to publish your literary work. You will need an agent who will negotiate with the publisher, and therefore will require the cost of paying for his services. The negotiations themselves will take some time. Signing the contract, a friendly dinner with the publisher - all this will be included in the costs of concluding a contract).

3. Measurement costs- associated with the need to identify the level of quality and the degree of compliance of the product (service) with the requirements. Due to the fact that the benefits have a variety of properties that bring different benefits to their owner, the buyer has to bear the costs of examining the product for environmental friendliness, analyzing certificates of conformity, assessing the authenticity of the product, and whether it meets international quality standards. The cost of measurement makes it difficult to buy for someone who does not have specific product knowledge. The task of minimizing measurement costs is largely carried out by the trade mark (“brand”) of a well-known company, as well as certificates of conformity.

4. Cost of specification and protection of property rights- the costs of establishing the object and subject of ownership, the functioning of the judicial system, law enforcement agencies, ensuring the protection and inviolability of the property of an individual, a company.

5. Costs of Opportunistic Behavior- related to ensuring that counterparties fulfill their obligations under the concluded agreement, coercing them to fulfill their obligations, identifying and punishing the violator of the agreement.

Opportunistic behavior means dishonesty, deceit, concealment of information, or, as the American economist O. Williamson explained this category, “calculated efforts to lead astray”; it entails tangible costs as before (ex ante), so after (ex post) making a deal. Costs are required for counterparties to protect themselves from opportunistic behavior.

So, in currency exchange offices there are special devices that check the authenticity of banknotes.

Transaction costs permeate the entire fabric of the economic life of society, individuals are constantly faced with them. J. Stigler, an American economist, argued that "a world with zero transaction costs turns out to be as strange as a physical world without friction forces."

K. Arrow gave a broader definition of transaction costs: transaction costs are the costs of operating an economic system. Both the market economy and alternative systems face transaction costs.

Having considered the advantages and disadvantages of the market, we see that it is effective in those areas that are subject to the free price mechanism, but the market does not work where it cannot penetrate. Therefore, together with the “invisible hand” of A. Smith, the action of the completely visible hand of the state is also necessary. Thereby government regulation complements the market.

There are not only failures, or fiascos of the market, but also failures of state regulation. The saddest thing for society is the incompetent intervention of state bodies in situations related to market failure. Society needs government intervention where and when the market is unable to effectively allocate resources.

Introduction

In the modern economy of any state, the leading place is occupied by the market. The market allows manufacturers to enter the international arena and provide their goods and services at a high level. professional level. The state constantly intervenes in the conduct of a market economy, regulating the market with the help of the state budget, taxation, the creation of bills, and antimonopoly policy. Because Russian Federation referred to as a mixed type of economy, for the citizens of our country, such state intervention in the market is the norm and does not cause absolutely no surprise. Many believe that in the presence of civil society, that is, the presence of democracy, producers have the right to freedom in conducting their market policies, but few people think that such control is necessary for the market in order to smooth out the so-called "failures", or as they are also called - "market fiasco", which can seriously harm the country's economy. State regulation complements and corrects the market mechanism. Based on the theory of market failures, the main economic role government is to intervene where the market fails to effectively allocate its resources. Each type of market failure involves a certain type of government intervention, in the event of a market failure, the state will act as the sole producer until the market mechanism is balanced. I consider the topic of my work relevant, since right now Russian market needs government intervention and the establishment of the country's economy. The purpose of the abstract is to consider the problem of market failure, to study the theory of market failure and the concept of the importance of government regulation.

The concept of "market" and "state"

In economic theory, there are many definitions of the market. Various definitions highlight different aspects of such a complex and multifaceted phenomenon of the socio-economic life of mankind, the market, and express different approaches. scientific schools or individual authors to this phenomenon.

We will consider the market as a form of organizing the private economic activity of people based on mandatory features: private property, voluntariness, economic interaction of independent and independent entities, and competition.

Subjects of market relations. The main subjects of the market are people ( individuals) and groups of people specially created for the joint implementation of economic activities. In today's economy, these groups are usually mistaken for legal entities. State-owned enterprises can also act as subjects of the market, if the state establishes for them such rules that are close to the conditions of activity in the market of individuals and legal entities.

Market subjects freely, relying on their own decisions, preferences, enter into economic relations with each other, which in economic theory are called contracts. Contracts are not only those written agreements concluded between the seller and the buyer, but any form of cooperation and agreements between independent and independent participants in the economic process.

The more developed the legal system of a society, its culture of tradition, the more diverse the organizations and institutions operating in national economy, the greater share is occupied in contracts implicitly expressed, implied conditions and obligations. For example, when hiring, it is usually not stipulated that the employee has the right to pay for sick days, since this right is provided for by national law. Therefore, the theory argues that relations between participants in the economic process, especially in developed societies, are built on the basis of imperfectly formulated contracts.

Entering into contracts, market entities pursue the goal of maximizing profits, although this statement is somewhat simplified and therefore often criticized by modern theory.

The state as a subject of economic relations is a set of organizations endowed with the right and duty to establish and protect the conditions of economic activity that are mandatory for other market entities and redistribute the results of their activities.

A set of organizations is understood as an interconnected and hierarchical system of governing bodies of the economy and society. In the modern world, this is the government, parliament, central bank, state departments of the regional and local levels, and others. government bodies. Them the most important feature- in that they forcibly set the conditions for economic activity.

Conditions refer to laws, procedures and regulations. Laws determine the state's requirements for economic agents. These requirements take the form, firstly, of restrictions (prohibitions) and, secondly, prescriptions (mandatory, for example, the need to register a company). Procedures establish the order, sequence of actions, rights and obligations of participants in economic or legal interaction. The norms fix mandatory economic parameters (for example, the minimum wage or the proportions of the exchange of the national currency for a foreign exchange rate).

The state is endowed with the right and obligation to perform certain economic functions by society. In other words, the state receives a "mandate" from society and is its economic "agent".

First, the conditions established by the state are relative for economic agents. Although in law, as is known, there are not only imperative (obligatory) and dispositive norms that allow choice, the latter expand the field of possibilities for economic agents, but do not remove the restrictions for this wider field of possibilities.

Secondly, the state not only determines the conditions of economic activity, but also protects them. In a modern market economy, the state provides such protection through the courts.

Thirdly, the definition and protection of the conditions of economic activity is not only a right, but also, first of all, the duty of the state.

Fourthly, the state is not guided by market principles of profit maximization and exchange equivalence. Therefore, it cannot be considered as an ordinary market entity. In the field of legislative and economic activity, the state is guided by the goals of harmonizing the interests of various strata of the general maintenance of social justice, ensuring economic growth, and many other goals that go far beyond market principles.

One of the fundamental characteristics of the market is competition. The subjects of the market are striving to gain the upper hand over the allies. Therefore, the competitive environment is internally unstable and needs protection from the state. It must fight the monopolization of the market and achieve such conditions that producers operate in a competitive environment. It is formed not only by antitrust laws, but also by special economic measures, such as lowering barriers to imports and encouraging new entrants to enter the market. Competitive environment - necessary condition successful economic development.

The positive effect of competition largely depends on the conditions in which it operates. Usually, there are three main prerequisites that are necessary for the functioning of the competition mechanism: first, the equality of economic agents, acting agents in the market (this largely depends on the number of firms and consumers); secondly, the nature of their products (the degree of homogeneity of the product); third, freedom to enter and exit the market.

There are several types of competition, or so-called forms of market structures.

Perfect (pure) competition arises under the following conditions: there are many small firms offering homogeneous products on the market, while the consumer does not care which firm he purchases this product from;

The share of each firm in the total volume of the market supply of this product is so small that any of its decisions to increase or decrease the price is not reflected in the market equilibrium price;

The entry of new firms into the industry does not encounter any obstacles or restrictions; entry and exit from the industry is absolutely free;

There are no restrictions on the access of a particular firm to information about the state of the market, prices for goods and resources, costs, quality of goods, production techniques, etc.

Competition that is associated to some extent with a marked restriction of free enterprise is said to be imperfect. This type of competition is characterized by a small number of firms in each area of ​​entrepreneurial activity, the possibility of any group of entrepreneurs (or even one entrepreneur) to arbitrarily influence market conditions. With imperfect competition, there are rigid barriers to entry of new entrepreneurs into competitive markets, and there are no close substitutes for products produced by privileged producers.

Between perfect and imperfect competition lies the type of competition that is very often encountered in practice and is, as it were, a mixture of the two noted types - this is the so-called monopolistic competition.

It is a type of market in which a large number of small firms offer heterogeneous products. Entering and exiting the market is usually not associated with any difficulties. There are differences in the quality, appearance and other characteristics of goods produced by different firms, which make these goods somewhat unique, albeit interchangeable.

The opposite of competition is monopoly (from the Greek monos - one and poleo - I sell). In a monopoly, one firm is the only seller of a given product that has no close substitutes. Barriers to entry into the industry for other firms are almost insurmountable. If the buyer is singular, then such competition is called monopsony (from the Greek monos - one and opsonia - purchase).

In a monopoly, as a rule, the seller wins; monopsony provides a privilege for buyers. Pure monopoly and pure monopsony are relatively rare phenomena. Much more often in a number of industries in countries with a market economy, the so-called oligopoly develops. This type of competition implies the existence of several large firms in the market, whose products can be both heterogeneous and homogeneous. Entry of new firms into the industry is usually difficult. A feature of an oligopoly is the mutual dependence of firms in making decisions about the prices of their products.

The totality of the norms of economic law and measures to maintain a competitive environment are united by the concept of “framework conditions for economic activity”. Creating favorable framework conditions is the main task of the state in a market economy.

The concept of market failures

A market failure, or "market fiasco" as it is also called, is a situation in which the market fails to coordinate the processes of economic choice in such a way as to ensure efficient use. The moment when the market is unable to ensure the efficient use of resources and the production of the required amount of goods, then they speak of market failures. The situation when the market mechanism does not lead to the optimal distribution of society's resources is called market failure or fiasco.

There are usually four types of inefficient situations that indicate "failures" of the market:

1. Monopoly;

2. Imperfect information;

3. External effects;

4. Public goods.

In all these cases, the state comes to the rescue. It tries to solve these problems by implementing antimonopoly policy, social insurance, limiting the production of goods, stimulating the production and consumption of economic goods. These areas of state activity constitute, as it were, the lower limit of state intervention in the market economy. However, in the modern world, the economic functions of the state are much broader. Among them: infrastructure development, education financing, unemployment benefits, various types of pensions and benefits for low-income members of society, and more. Only a small number of these services have the properties of public goods. Most of them are not consumed collectively, but individually. Usually the state pursues an anti-inflationary and antimonopoly policy, seeks to reduce unemployment. In recent decades, it has become more and more active in regulating structural changes, stimulating scientific and technological progress, and striving to maintain high rates of development of the national economy.

Externalities (it is this manifestation of the market fiasco that is discussed in detail in this paper) are the costs or benefits of market transactions that are not reflected in prices. The reason for the existence of externalities is the fact that all people live in the same world and use the same resources, that is, there are no established property rights for resources. Each person can pursue his own goals, while his actions can have a side effect (not included in his goals), which affects the condition of other people.

In the language of economic theory, this means that the consumption or production of a good can have a side effect on the consumption or production of another good. Such influences are called external effects. Externalities are not the impact of one process on another through the price system (for example, an increase in the production of bricks through the price system "beats" the production of concrete).

According to the peculiarities of occurrence, consumer, technological or monetary externalities are divided.

A consumer externality is an external effect that arises on the basis of a direct functional dependence of utility on the amount of consumed good for one person and an inverse (direct) functional dependence for another person that is not separate from each other.

An example of a consumer externality is the noise pollution that occurs when aircraft take off and land, which negatively affects the utility of people living in the communities adjacent to the airfield.

Technological externality is an externality that arises on the basis of the existence of a technological dependence of the output of one economic agent on the volume of goods or services produced by another economic agent.

Examples of technological externalities would be the classic examples of bees (positive technological externalities) and crop damage (negative) technological externalities.

Monetary externality - an externality arising from the influence on the amount of income or costs of one economic agent of production volumes, pricing policy, advertising and other methods of competition of another economic agent

An example of this type of externality is a situation that occurs in a competitive market, when the behavior of one firm negatively affects the level of average income and, accordingly, the economic profit of another firm. This situation can be interpreted in terms of a multilateral monetary externality. In a competitive environment, none of the firms has the exclusive right to set a price for its product that would be the only reference point for consumers. As a result, the decisions of competitors, within the limits of the rights that they have, have a side effect on the amount of income of a given producer by influencing the conditions of demand for a product (service) of this producer.

Depending on how the emerging external effect is related to the parties entering into a contract regarding the exchange of ownership of the corresponding product, one can distinguish between internal and external externalities.

External externalities - such effects that are external not only in relation to this contractual relationship, but also in relation to the group of subjects participating in the contract

Internal externalities are those effects that are external to a given contractual relationship, but internal to the group participating in the contract.

Thus, some economic entities (firms or consumers), pursuing their goals, can simultaneously cause damage or benefit other entities. In which case is this situation a market failure and what is this failure? A market failure occurs when there is no externality fee. And there may be no payment if there is no market for the resource or good through which this external effect is realized.

Consider the following example. Let good X be produced under conditions of perfect competition. Each enterprise producing it is in equilibrium when

Here MCX? the private marginal cost of producing good X, which does not include the cost of neutralizing the negative externality associated with the production or consumption of this good. These costs are borne not by the producer of goods X, but by its consumers (intermediate or final), so for him these are external costs. The sum of private and external marginal costs represents the marginal social cost, MSCX, that society has to incur in connection with the production of good X:

MSCX=MCX+MECX

Obviously, if the profit-maximizing condition is satisfied

If the production of some other good Y is not accompanied by external costs (or benefits), then for it the profit-maximizing condition will be

Comparing the formulas PX< MSCX и PY = MCY = MSCY, легко увидеть, что если производство X сопровождается внешними затратами, а производство Y ? нет, то в условиях конкурентного равновесия имеет место

MRSXY = PX/PY = (MCX + MECX)/MCY = MRPTXY

or MRPTXY > MRSXY,

which contradicts the condition of the Pareto efficiency of the output structure.

As seen in fig. 1, the good X is produced in this case too much, its profit-maximizing output will be q "X. Taking into account external costs, it should be much less? q*X. Using similar reasoning, you can make sure that the output of good X will be less than the socially optimal level if MCX > MSCX.

Figure 1. Private and public marginal costs

As follows from Fig. 1, the surplus of the producer of good X when it is released in volume q "X is equal to the sum of areas A, B, C. However, from the point of view of society, it should be less by the amount of external costs. The latter can be represented as the sum of areas E and F, or something the same as the sum of the areas B, C, D. Thus, the social surplus will be

SS = (A + B + C) v (B + C + D) = A v D,

which is less than the private surplus of the producer of good X (A + B + C).

If the output of X could be limited to q*X, the private and public surplus would be the same and equal to the area A.