00000caa a22000003i 4500 UP-1685594773862409028 Buklod 20210429155049.0 m | | ta 210429s2016 xx r |||| u|eng d (iLib)UPBAG-00039956708 BAG rda eng ARTICLE-3307 Fabella, Raul V. author. Re-thinking market failure in the light of the imperfect state Raul V. Fabella and Vigile Marie Fabella. 2016. pages [28]-46 25 cm text rdacontent unmediated rdamedia volume rdacarrier Title was 'Philippine Review of Business and Economics' until 1979. Title changed to 'Philippine Review of Economics and Business' from 1980-2000, and again changed to 'Philippine Review of Economics' since 2001. Includes bibliographical references (pages 45-46) We propose a formal re-definition of the concept of market failure based on the idea of the imperfect state. In the neoclassical taxonomy, a decentralized regime of exchange is a market failure if its laissez-faire equilibrium solution is welfare-dominated by a technically feasible alternative. If the state is perfect (that is, it is benevolent) and competent (that is, its transactions cost of intervention is zero), then every market failure can be remedied with a welfare gain. On the other hand, if the state is imperfect (that is, either non-benevolent or with non-zero transactions cost of intervention), the state intervention to correct the market failure can be welfare-reducing. Extending the logic behind Williamson's remediableness criterion and Stiglitz' constrained Paretoness, we introduce a new taxonomy of failures: the concept 'proto-failure' now denotes any failure which laissez-faire interaction cannot remedy with a welfare gain. The label 'market failure' now denotes a proto-failure which the relevant state can correct with a welfare gain. A proto-failure that the relevant state cannot correct with a welfare gain we call 'Remediableness Condition efficient'. We use the net welfare metric which explicitly accounts for transactions cost of intervention as efficiency criterion. The new taxonomy is equivalent to the old if the state is perfect, that is, all proto-failures are market failures. When the state is imperfect, the set of market failures is smaller than the set of proto-failures. A proto-failure is a necessary 'but not a sufficient' condition for a welfare-improving government intervention. This paper follows the Williamson counsel to 'push the logic of positive transactions cost to completion'. Capitalism. Business cycles. Welfare economics. Economic policy. Externalities (Economics) Fabella, Vigile Marie author. The Philippine Review of Business and Economics Vol. LIII, No. 2 (December 2016), p. [28]-46. Request full-text access via UPB University Library through https://forms.gle/KZjBv7aRtY6jiL5E9 (viewed 29 April 2021) UPBAG UPBAG-MAIN ARTICLE-3307 Analytics