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Market Failure and Government Intervention

NOTE:  Many studies (column 3) implicitly optimize with respect to the objectives in column 1.  The most likely departments to undertake such studies are shown in column 4.  Typically studied choices are presented in column 2.  Business schools typically offer courses specializing in the decision sciences that are shown with asterisks in column 4.  The chapters of this books that deal with each area are shown in parentheses in column 1.

G.  Maximizing Social Welfare: Industry Studies

and Other Studies of Government Intervention

A major underpinning of our economic system is that markets should be relied on where ever possible to allocate the nation's resources.  However, markets may be organized in ways that allocate resources inequitably or inefficiently.  In such cases government may be required to change the rules by which markets work or may even need to provide some goods and services itself as in the case of defense goods. Industry studies analyze the characteristics of a market including the market shares of the major firms, the behavior of the firms, and their profitability to determine if there are any imperfections in the way that markets are organized.  Such studies then determine what forms of government intervention, if any, may correct any market imperfections.  Much of the deregulatory activity in recent years has been based upon the economic analyses involved in industry studies.  At the end of this chapter we will study in more detail the studies that government agencies undertake.

H.  Summary of Study Types.

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