INSPIRED BY LECTURES PRESENTED BY PROFESSOR PAMELA STARR AS RECORDED

BY TERESA HUDOCK, DIRECTOR OF USC, CALIS

Conditions for Market Efficiency

4 Conditions Needed for Efficiency

Private PropertyFree Entry/CompetitionPerfect Information Price Signal (supply, demand are responding

and adjusting to price properly.

Private Property

Weaknesses of the market: Does not protect private property Does not provide public goods (parks, streets,

libraries, safety etc.) Does not prevent “free riders”; people who take

advantage of the “commons” Does not provide incentives to protect the “commons”

Private Property Cont.

In order to resolve these issues, government must exist to: Provide rule of law Protect private property Provide public goods Protect the commons Provide incentives for the creation of public goods

Private Property Cont.

When the government gets involved to do the previous things, consequences exist that can further disrupt market efficiency.

Examples:Weak Rule of Law: not enforcing

and protecting property rights (both physical and intellectual property)

Weak Rule of Law

a. weak institutions (no one to fix the problem)b. corruption: lack of accountability (no one to

get in trouble if something goes wrong or is easily bribable)

c. inconsistent application of law (some people enforce the law, some don’t, the law applies to some, but not all)

d. lack of transparency (secrets are kept, especially the advantages given to some)

Does government need to be involved?

Do we need public goods?Who should pay?Who should take care of them?