Topic > Understanding market failure: causes and public policy...

In the market, there is the presence of priceless but non-zero transaction costs. Due to the presence of transaction costs, exchanges are not formed. Some transactions have taken place only if the cost of unpriced transactions approaches zero or is less than the net financial effect to be expanded. The lack of acceptance of these types of operations is the main reason for market failure. When the cost of operating the price system tends to zero then only market failures disappear. Furthermore, the specifics of property rights are never fully defined, so there are always costs involved in resolving them. Therefore, we can say that unpriced transaction costs are generally universal (Allen 1991). Because transaction costs are ubiquitous and everywhere, we can encounter externalities and market failures wherever the transaction occurs. The concept of market failure can be used for circumstances that many analysts would recognize as unimportant and tend to avoid. For example; A driver on the highway who drives very slowly and imposes on others fails to realize the value of the cost of another driver's time on the highway. This also creates an externality. In this type of situation there is a non-market failure because the highway is owned by the government. Wherever an ethical threat or adverse selection can be initiated, externalities are found. A fire insurance company is always worried that the insured will neglect fire prevention measures. Likewise, the flood insurance company can convince people to build their home in floodplain areas. If there is inefficiency in the legislation that influences markets, there are externalities there. A law that encourages inefficient breach of contract generates an externality. A state imposes certain fees for title transfer fees. If the fee to transfer ownership of a new car is high, most people will not prefer the trade. Therefore, the car manufacturer will develop few cars as a monopoly. Therefore, we can say