Several other theorists theorize that the underlying cause of market failure is often a problem of property rights. A market is an institution in which individuals or firms exchange not just commodities, but the right to use them in particular ways for particular amounts of time, markets are institutions which organize the exchange of control of commodities, where the nature of the control is defined by the property rights attached to that commodity.

As a result, agents’ control over the use of their commodities can be imperfect, because the system of rights which defines that control is incomplete. Typically, this falls into tow generalized rights…excludability and transferability. Excludability deals with the ability of agents to control who uses their commodity and for how long-and the related costs associated with doing so. Transferability reflects the right of agents to transfer the rights of use from one agent to another, for instance by selling or leasing a commodity, and the costs associated with doing so. If a given system of rights does not fully guarantee these at a minimal (or no) cost then the resulting distribution can be inefficient. Considerations as these form an important part of the work of institutional economics. Nonetheless, views still differ on whether something displaying these attributes is meaningful without the information provided by the market price system.

INTERPRETATION AND POLICY

The above causes represent the mainstream view of what market failures mean and of their importance in the economy. This analysis follows the lead of the neoclassical school and relies on the notion of Pareto efficiency and specifically considers market failure absent considerations of general equilibrium in order to deal with failures to attain full employment or the non-adjustment of prices and wages.

Many social democrats and “New Deal Liberals” have adopted this analysis for public policy so that they view market failures as a very common problem of any unregulated market system and therefore argue for state intervention in the economy in order to ensure both efficiency and social justice (usually interpreted in terms of unlimited avoidable inequities in wealth and income). Both the democratic accountability of these regulations and the technocratic expertise of the economists play an important role here in shaping the kind and degree of intervention. *11) We have to work smarter. Neoliberals follow a similar line, often focusing on “market oriented solutions” to market failure; for example, they propose going beyond the common idea of having the government charge a few for the right to pollute (internalizing the external cost, creating a disincentive to pollute) to allow polluters to sell their pollution permits.

Some remedies for market failure can resemble other market failures. For example, the issue of the systematic underinvestment in research is addressed by the patent system that creates artificial monopolies for successful inventions.