TITLE:
An Alternative View to the Cause of Market Failures: A Dynamic Approach
AUTHORS:
Salvador Contreras
KEYWORDS:
Market Failure, Corruption, Institutional Change, Development
JOURNAL NAME:
Theoretical Economics Letters,
Vol.4 No.7,
August
5,
2014
ABSTRACT:
This paper presents an
alternative view to the cause and size of market failures. The work here
suggest that the size of the market failure is not man made per se but rather
given a full set of initial conditions it is endogenous to the dynamical forces
at play. It is shown that the level and variance of market failures is tied to
the location of the steady state (i.e.
level of development). The paper finds that only changes to the location of the
steady state produces changes to the potential level of the market failure.
This paper adds to the increasing body of literature the notion that institutional
change is not a sufficient condition to sustained economic development.