Market failures

    I hope you have realized that market failures is not just confined to public goods and externalities!  Those are the stuff you learned in Pre-U economics as well as 1st year microeconomics.  Now that we are doing a more advanced course on market failures,  do go back to your notes and understand what do terms like asymmetric information, missing markets and natural monopolies mean.

    Besides that, you should also be clear on how goods with non-rival characteristics affect pareto-efficiency.  Remember, society is composed of all its individuals.  If a good is non-rival, meaning that the marginal cost of producing for an additional consumer is zero, the criterion of pareto-efficiency ' demands' that anyone who derives additional benefits from consuming that good be allowed to consume it, even if that person refuses to pay for it.

    Now, if that is the case, why do we still have things like cable TV?  Does SCV has the right to de-scramble cable TV signals and require us to purchase the necessary equipment from it?  Why do we not have a system where the government charges all Singaporeans a nominal rate and then provide cable TV for us?  This marginal-cost controversy has resulted in several well-known economists 'clashing' over it, such as Harold Hotelling and Ronald Coase.  In this light, there is a rather interesting as well as a very pedagogic (reader-friendly) article that analyses this issue here.   Read it well and if you have any comments or discussions about the issue, you are welcome to consult me during office hours.

    Another comment I have is that the student's discussion on the role of private sector in part b is superficial at best.  This is especially in the area of medical research.  If it is indeed true that government must step in to provide medical research, how would we explained the booming pharmaceutical industry in the world?  We must always separate the market failure effect and the role of the private sector ( I am reminded of the cool rock song by Offspring "Got to keep them separated"  J at this point).  A market failure does not necessarily means that there is no role for the private sector.  Government provision entails a diversion of resources too and entails many costs that you will learn later in this course. As promised, there is an excellent discussion about medical research in malaria given here on why is there a market failure, and how can governments work with the private sector to correct it.

    There is indeed a vast amount of resources available on the WWW for your usage.  However, I would not impose the requirement that you use them if you feel that the expected benefits do not outweigh the costs (Of course, if anyone of you wants to take the benefits of your classmates into consideration and decides it is worth it, that will be real cool J).  When I was an undergraduate, I always have an averse reaction towards lecturers or tutors who think that all we are doing in the current semester is their particular module and nothing else J.  The objective is to make you aware of such resources in the hope that, after you hand up the exam scripts for this course in 3-4 months time, you will not stop the learning process.