This blog post develops an understanding of ‘market failure’ that goes beyond supply and demand. It’s the perfect starting point for private sector development practitioners interested in enhancing their knowledge of market failure.
Shawn Cunningham argues that if your proposed solution to address market failure refers to the suppliers and buyers of a given good or service, you may be too close to the action to make a long-term difference. Instead, he elaborates more nuanced reasons for market failure including: the availability and cost of information; market interdependencies; supporting networks and hierarchies; and the societal context in which markets are embedded. These ‘bigger picture’ approaches mean that potential solutions will often lie in institutions, policies, regulations and standards.