Market Failure, Common Interests, and the Titanic Puzzle
One important argument for the free market is that of the ‘invisible hand’ or ‘private vices, public virtues’. That is, individual profit-seeking behaviour by suppliers will lead to better quality, lower priced goods for consumers than could be achieved by other means. Where this is so the market may be to the benefit of all, including the worst off. However, reflection on a range of cases – including what is here called the Titanic Puzzle, introduced by Thomas Schelling - shows that this is not always so. Where there are important market failures which may not be correctable within the market, the goal of helping the worst off and vulnerable can sometimes be best served by setting up structures which generate common interests between supplier and consumer. The goods considered here are termed ‘high-fidelity slow-release’ goods. They are those where consumption of the good is a lengthy or deferred process, ‘escape costs’ are high, and the quality of the good may vary over the life of the exchange, subject to the influence of the supplier even after purchase. Many long term financial products, and other goods such as education, plausibly have such character. An unregulated market for such goods is highly problematic.Article
Wolff, Jonathan (2007) Market Failure, Common Interests, and the Titanic Puzzle.
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