missing market

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The absence of a market on which to trade a good. It is not possible to trade the full range of future and contingent commodities, and markets are missing for many externalities. Missing markets are a source of market failure: the equilibrium of a competitive economy will not be Pareto efficient if there are missing markets. Some future goods cannot be traded because the law forbids contracts for future labour, by which effectively people sell themselves into slavery. Many future goods cannot be traded because the people who would wish to trade in them have not yet been born. Many markets in contingent goods cannot exist because the actual occurrence of the contingencies is private information which cannot be objectively confirmed. Finally, markets may be missing because not enough people would wish to trade in them.

Subjects: Economics.

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