Using Markets to Help Solve Public Problems

John McMillan

in Governance, Regulation, and Privatization in the Asia-Pacific Region

Published by University of Chicago Press

Published in print March 2004 | ISBN: 9780226386799
Published online February 2013 | e-ISBN: 9780226386966 | DOI:
Using Markets to Help Solve Public Problems

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Governments around the world have begun using markets as means to policy ends. Pollution control has been assigned to a market in emissions allowances. The right to use the electromagnetic spectrum for telecommunications has been auctioned off. In electricity supply, markets have replaced allocation by state agencies or regulated monopolies. This chapter provides a framework for evaluating the use of markets to solve economic policy problems. The analysis focuses on the “middle ground” between government ownership and purely private governance, which arises when government permits an activity to be conducted privately but maintains substantial control rights. The following examples are used: emissions trading (for environmental protection); spectrum auctions (in which public policy designs the market); electricity regulation (where Californian efforts at deregulation were badly designed); and fisheries (where the government sets the quota to protect the “tragedy of the commons” and overfishing). It is argued that markets generate information, otherwise unavailable to governments, that can be used in the appropriate regulatory environment if governments use markets to induce the revelation of needed information. But, at the same time, markets cannot by themselves solve public policy problems, and regulation (and information) continues to be needed. Two commentaries are also included at the end of the chapter.

Keywords: government ownership; private governance; emissions trading; spectrum auctions; electricity regulation; fisheries

Chapter.  8849 words. 

Subjects: Business and Management

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