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Market Failure and Government Intervention

developed throughout this book, help to identify the best, unbiased solution, but there are at least three more steps before this solution can be implemented to  solve a problem: (1) the solution must be communicated to the final decision makers in the organization, (2) the decision makers must agree on the solution, and (3) a manager must ensure that the solution is implemented.  All too often, an analyst works diligently to come up with the best solution to a problem only to see company politics result in an suboptimal choice from the standpoint of the company's objectives.  Furthermore, a manager may form a consensus on the optimal solution only to see the organization fail to carry it out.  These are some of the difficulties inherent in public choice that will be studied in chapter 17.

All problem solving must be done within a political environment.  It will therefore be necessary throughout this book to examine the social, political, and economic context in which problems are solved.  Rather than believing that managerial economic tools somehow magically manage people, the emphasis here is to see how people manage the tools.


administrative costs, 28

Business Plans, 6

Capital Budgeting, 7

Choices, 3

closure analysis, 30

compliance costs, 28

Constraints, 3

consumption externalities, 11

Cost Benefit Analysis, 7

cost effectiveness analysis, 30

Cost Effectiveness Studies, 5

Cost-benefit analysis, 7, 29

cross license, 36

deadweight welfare loss, 10

Divisibility and Excludability, 15

Dynamic Market Failure, 18

Economic Impact Analysis, 29

efficiency costs, 29

Equity, 16

excludability, 15

Externalities, 11

fiscal impact analysis, 30

Fiscal Impact Analysis, 31

Forecasts, 5

free riders, 15

Gini Coefficient, 16

Impact lag, 38

Implementation lag, 38

income statements, 6

Industry studies, 8

Industry Studies, 8

industry study, 31

Information, 15

Information “asymmetry”, 15

Innovation, 35

Lags, 38

Lorenz curve, 16

marginal rate of taxation, 37

marginal social value, 11, 12

Market Failure, 9

Market Power, 9, 33

Marketing, Advertising Studies, 5

nationalize, 14

Non-replenishable resources, 23

objective-cost study, 30

Objectives, 3

opportunity cost, 3

patent, 34

privatization, 37

public bad, 15

public enterprise, 14

pure private good or service, 15

pure public good, 15

quintiles, 16

Recognition lag, 38

regulatory impact analyses, 30

Replenishable Resources, 22

Response lag, 38

social marginal cost, 11

social optimum, 11

The Cobweb Model, 21

1.  38 Stat. 717 (1914); 15 U.S.C. Sec. 41-58

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