Regulations are necessary to correct market failures from "summary" of The Economics of Regulation: Principles and Institutions: Economic principles by Alfred Edward Kahn
Regulations play a crucial role in correcting market failures, which are situations where the competitive market outcome is not efficient. In a perfect world with perfectly competitive markets, resources would be allocated efficiently, and there would be no need for government intervention. However, this ideal scenario rarely exists in the real world. One of the main reasons why markets fail is the presence of externalities, which are costs or benefits that are not reflected in the market price. For example, pollution is a negative externality that imposes costs on society that are not accounted for by the polluting firm. In this case, regulations such as emission limits or carbon taxes can help internalize these external costs and bring the market outcome cl...Similar Posts
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