Market Failure By Joseph Desjardins

What is a market failure? In the words of Joseph Desjardins, from the book, An Introduction to Business Ethics, a market failure can be defined as a situation in which the pursuit of profit will not result in a net increase in consumer satisfaction. They can also be viewed as scenarios where individuals’ pursuit of self-interest leads to inefficiency. But what does this mean in regards to a utilitarian way of thinking? Market failures have negative effects on the economy because an optimal allocation of resources was not accomplished. In chapter three of this book, Desjardins describes three types of market failures and their impact on the ‘utilitarian’ defense of the Economic Theory of Corporate Social Responsibility. The most well-known …show more content…
Public goods are social goods such as, clean air, scenic views, and safe streets, for which no pricing mechanism exists. Prices often understate the full range of services provided by an asset. Without a set price, no means are provided for markets to ensure that these goods get allocated to those who values them the most. This means that there is no guarantee that markets will result in the optimal satisfaction of the public interest of public goods. In order to protect these goods, another force other than economic markets would be needed as a policy mechanism. This could mean increasing the price of harmful products, through taxation, and providing subsidies for the beneficial products. The last example discussed by Desjardins is general harm resulting from individual rationality. This occurs in situations in which individual pursuit of rational self-interest results in a negative outcome. This negative outcome could’ve been avoided if the parties’ behavior been coordinated through cooperation or regulation. A common example of this, as stated by Desjardins, is prisoners’ dilemma which means cooperation has a more optimal outcome than competition …show more content…
A known defender for this model is economist Milton Friedman. One of two arguments in favor of this model is the utilitarian defense. Utilitarians argues that the morality of an action is determined by the total amount of good it creates and measured against the total amount of harm. In other words, as long as it benefits the majority, the minority is nothing to worry about. However, a flaw of this theory is that it is impossible to correctly determine the total harms and benefits of an action. According to the utilitarian defense, utilitarianism requires us to strive to maximize the amount of well-being in the world and to minimize the amount of suffering. A possible reply to this defense is the market failure reply. This reply states that it is not generally the case that the greatest good for the greatest number is achieved when corporations engage in free and open competition with the sole aim of enriching their investors. Another counterargument for the utilitarian defense is that solely focusing on profit will lead to a negative outcome due to the complexity of markets. The economic model of social responsibility is considered inappropriate to this theory because it is an unconditioned ethical directive which goes against everything Utilitarians