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 example of a market failure would have to be externalities. Common examples include: air pollution, groundwater contamination and depletion, soil erosion, and nuclear waste disposal. Externalities can either be positive or negative which can be beneficial or destructive to markets. These externalities serve as proof that markets are failing to achieve optimal results regardless if they’re efficiently functioning. Desjardins suggests that a solution to this would be to regulate and control the markets to internalize these externalities. To internalize externalities would mean to ensure that the consequences of the economic exchange in question doesn’t affect third parties, only the participating parties.
The second example…