Missing market
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A missing market is a situation in
Examples
A variety of factors can lead to missing markets:
A classic example of a missing market is the case of an externality like pollution, where decision makers are not responsible for some of the consequences of their actions. When a factory discharges polluted water into a river, that pollution can hurt people who fish in or get their drinking water from the river downstream, but the factory owner may have no incentive to consider those consequences.
Coordination failure can also prevent market formation. Again considering the pollution example, downstream residents might seek to be paid by the factory owner who pollute their water, but because of the
Another barrier to pollution markets could be technology. If the river has several factories along its banks, it may be difficult or impossible to monitor which factory is responsible for downstream pollution.
High
Markets can also be missing if there is a failure of trust or information. In non
Solutions
In many cases of missing markets, it may be possible for the government or another actor to create circumstances that make market exchange possible. In the case of pollution, one popular solution is for the government to assign
References
- Equilibrium Market Formation Causes: Missing Markets, by Walter P. Heller.[1]