Editing Market failure (section)

=== Ecological ===
{{Ecological economics|Concepts}}
{{See also|Ecological economics #Not 'externalities', but cost shifting| Nicholas Georgescu-Roegen #Criticising neoclassical economics (weak versus strong sustainability)|Tragedy of the commons|Uneconomic growth}}

In [[ecological economics]], the concept of [[Externality|externalities]] is considered a misnomer, since market agents are viewed as making their incomes and profits by [[Ecological economics#Not 'externalities', but cost shifting|systematically 'shifting' the social and ecological costs]] of their activities onto other agents, including future generations. Hence, externalities is a ''modus operandi'' of the market, not a failure: The market cannot exist without constantly 'failing'.

The fair and even allocation of non-renewable resources over time is a market failure issue of concern to ecological economics. This issue is also known as 'intergenerational fairness'. It is argued that the [[Market (economics)#Mechanisms of markets|market mechanism]] fails when it comes to allocating the Earth's finite mineral stock fairly and evenly among present and future generations, as future generations are not, and cannot be, present on today's market.<ref name=ngr01/>{{rp|375}} <ref name=ap01/>{{rp|142f}} In effect, today's market prices do not, and cannot, reflect the preferences of the yet unborn.<ref name=jm01/>{{rp|156–160}} This is an instance of a market failure passed unrecognized by most mainstream economists, as the concept of [[Pareto efficiency]] is entirely static (timeless).<ref name=hd02/>{{rp|181f}} Imposing government restrictions on the general level of activity in the economy may be the only way of bringing about a more fair and even intergenerational allocation of the mineral stock. Hence, [[Nicholas Georgescu-Roegen]] and [[Herman Daly]], the two leading theorists in the field, have both called for the imposition of such restrictions: Georgescu-Roegen has proposed a minimal bioeconomic program, and Daly has proposed a [[Steady-state economy#Herman Daly's concept of a steady-state economy|comprehensive steady-state economy]].<ref name=ngr01/>{{rp|374–379}} <ref name=hd02/> However, Georgescu-Roegen, Daly, and other economists in the field agree that on a finite Earth, [[Nicholas Georgescu-Roegen#Criticising Daly's steady-state economics|geologic limits will inevitably strain most fairness in the longer run]], regardless of any present government restrictions: ''Any'' rate of extraction and use of the finite stock of non-renewable mineral resources will diminish the remaining stock left over for future generations to use.<ref name=ngr01/>{{rp|366–369}} <ref name=hd01/>{{rp|369–371}} <ref name=kb01/>{{rp|165–167}} <ref name=mb01/>{{rp|270}} <ref name=av01/>{{rp|37}}

Another ecological market failure is presented by the overutilisation of an otherwise renewable resource at a point in time, or within a short period of time. Such overutilisation usually occurs when the resource in question has poorly defined (or non-existing) [[Property rights (economics)|property rights]] attached to it while too many market agents engage in activity simultaneously for the resource to be able to sustain it all. Examples range from over-fishing of fisheries and over-grazing of pastures to over-crowding of recreational areas in congested cities. This type of ecological market failure is generally known as the '[[tragedy of the commons]]'. In this type of market failure, the principle of Pareto efficiency is violated the utmost, as ''all'' agents in the market are left worse off, while nobody are benefitting. It has been argued that the best way to remedy a 'tragedy of the commons'-type of ecological market failure is to establish enforceable property rights politically – only, this may be easier said than done.<ref name=hd03/>{{rp|172f}}

The issue of [[climate change]] presents an overwhelming example of a 'tragedy of the commons'-type of ecological market failure: The Earth's [[Atmosphere of Earth|atmosphere]] may be regarded as a 'global common' exhibiting poorly defined (non-existing) property rights, and the waste absorption capacity of the atmosphere with regard to carbon dioxide is presently being heavily overloaded by a large volume of emissions from the [[world economy]].<ref name=cm01/>{{rp|347f}} Historically, the [[fossil fuel]] dependence of the [[Industrial Revolution]] has unintentionally thrown mankind out of ecological equilibrium with the rest of the Earth's biosphere (including the atmosphere), and the market has failed to correct the situation ever since. Quite the opposite: The unrestricted market has been exacerbating this global state of ecological ''dis''-equilibrium, and is expected to continue doing so well into the foreseeable future.<ref name=js01/>{{rp|95–101}} This particular market failure may be remedied to some extent at the political level by the establishment of an international (or regional) [[Emissions trading|cap and trade property rights system]], where [[Greenhouse gas emissions|carbon dioxide emission]] permits are bought and sold among market agents.<ref name=hd03/>{{rp|433–35}}

The term '[[uneconomic growth]]' describes a pervasive ecological market failure: The ecological costs of further economic growth in a so-called 'full-world economy' like the present world economy may exceed the immediate social benefits derived from this growth.<ref name=hd03/>{{rp|16–21}}