Tag Archives: Market Failure

Just because you model it wrong, doesn’t mean it failed

Do markets really fail, if the failure is really in the fact that the financial system had the wrong belief?  In other words, the market does note suffer a failure simply because the model you use to predict market performance is wrong.

Interesting essay in the NYT magazine today, which leads with:

Among the most astonishing statements to be made by any policymaker in recent years was Alan Greenspan’s admission this autumn that the regime of deregulation he oversaw as chairman of the Federal Reserve was based on a “flaw”: he had overestimated the ability of a free market to self-correct and had missed the self-destructive power of deregulated mortgage lending. The “whole intellectual edifice,” he said, “collapsed in the summer of last year.”

Leave a comment

Filed under Market Failure

Market Failure, Public Value Failure

When the two failures occur simulatanously, you have a serious problem.  See What you don’t know about a drug can hurt you in the WSJ.

“What’s happening in oncology is happening in all other fields of medicine,” says study co-author health economist Scott Ramsey at the Fred Hutchinson Cancer Research Center in Seattle, who checked more than 2,000 chemotherapy trials recorded in the federal registry. “You may not get a full picture of whether a drug is effective or not. With the stakes being what they are in terms of money and human lives, this is a big problem in my view.”

Leave a comment

Filed under Market Failure, public failure

Cybersecurity – Market Failure or Public Values Failure or both?

The Center for Strategic and International Studies is delivering a report, “Securing CyberSpace for the 44th President,” which notes, among other things, :

“We believe that cyberspace cannot be secured without regulation,”

The report, which offers guidance to the Obama administration, is a strong indictment of government and private industry efforts to secure cyberspace to date. “The laissez-faire approach to cyber-security has failed,” Mr. Kellermann said.

So, the commission concludes the market has failed to secure cyberspace.  And, it has also concluded that current government policy has failed to secure cyberspace.

In the intro, the report reads:

We advocate a new approach to regulature that avoids both prescriptive mandates, which could add unnecessary costs and stifle innovation, and overreliance on market forces, which are ill-equipped to meet public safety and national security requirements.

So, we have reasons why the market fails with regards to cybersecurity.

Not surprisingly, DHS is defending itself against the Commissions’ criticism of how cybersecurity has been managed.

“To be fair, we are undertaking something not unlike the Manhattan Project,” Keehner said. “Billions of dollars are going into this effort. We’re the first to admit there is more work to be done, but the progress that we have made should not be discounted.”

For further reading — see presentations made at CSIS event called

Improving Cybersecurity : Recommendations from Private Sector Experts

Leave a comment

Filed under cybersecurity, Market Failure, Policy

Information Asymmetry – A case of what you don’t know will hurt you

This blog entry describes how and why opaqueness is a must on Wall Street and notes the obvious — that a drive to maintain informational advantage frustrated attempts to regulate (and continues to do so) dangerous practices of asymmetry.

Transparency is the enemy of information advantages, and opacity is the friend of high margin investment products.  In the wake of unprecedented regulation after the dot-com bubble and the Worldcom and Enron scandals, Wall Street turned transparency and disclosure on its head by layering so many documents onto each other, few people ever bothered to read them.  This obfuscation of otherwise transparent information recreated new informational asymmetries leading to new high margin businesses.  Informational advantages are what drive Wall Street profits.

A drive to maximize informational advantage defeats market mechanisms and public regulatory efforts leading to both market and public value failure.

Leave a comment

Filed under Market Failure, public failure

Recession – Market Failure?

a search using the terms “is recession market failure” referred someone to this site.

It is a question to study — and to discuss whether public values failure contributed to the market failure.

Leave a comment

Filed under Economies, Uncategorized

Failure – Market, Public, and Ethics

Friedman thinks we hit the trifecta of failures with regards to the financial crisis.

This financial meltdown involved a broad national breakdown in personal responsibility, government regulation and financial ethics.

No time to do it now – -but need to find the Michael Lewis piece he mentions.

Leave a comment

Filed under Market Failure, public failure

Market Failure – Public Value Failure : An Intersection

When you have a program, such as the one described in this NYT article on private Medicare insurance, that relies on the market to solve a public value problem, and that program fails — you end up in the total failure quadrant.

(need a picture here)

Private health insurance plans, which serve nearly a fourth of all Medicare beneficiaries, have increased the cost and complexity of the program without any evidence of improving care, researchers say in studies to be published Monday.

Leave a comment

Filed under Market Failure, Policy