Most of us are living in democratic societies, where city majors are elected by people by the majority of votes. Thus, they have to defend the interests of majority in order to be re-elected.
I want to give several examples of possible market failures in cities. In economic sense, this means that free markets may fail, .i.e., do not provide the socially efficient allocation. The first ideas coming to my mind are as follows: a) monopoly power in distribution of utilities (at least the physical network is unique, and the price of provision of gas, electricity and water is often above the cost), b) too much reconstruction of houses and repair of roads (in some cities of developed countries), that brings too much pollution and create bottlenecks in traffic. Since we have possibility of a monopoly and externality, market equilibrium is not efficient, and thus there should be smart regulation. However, it is very easy to give a bribe to responsible people or even to hide those effects from public. There might be a lobby of firms doing repair to overuse public money above public interest.
I have two questions: 1) how this governance is efficient in the cities that you know? (please, give both positive and negative examples), 2) do you know other examples of market failures in cities.
Dear Yuri Yegorov,
you proposed to consider a very important problem. I often reflected on this topic.
Currently, I, unfortunately, do not see any solutions to the problems you are considering in Russia. Certain (real) changes are needed in the formation of the legislative, executive, judicial systems. Several political parties in Russia speak about these changes. So far I see a tendency to return to the system that existed in the USSR (I mean the worst parts - elements, links, sides - of this system). But at the same time the means of production are in the hands of a small group of people who did not create them, but received them in various ways in the process of privatization of state property.
I am not a supporter of full nationalization, I am a supporter of effective reforms that will lead to higher living standards (quality of life), increase in Gross Domestic Product per capita, a reduction in the substantial income gap between a small rich group of people and poor people (beggars).
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https://en.wikipedia.org/wiki/Means_of_production
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" Corruption is on the stage. Massive corruption. "
" Abuse of public procurement is in practice! "
Ljubomir Jacić
Cities are generally viewed as being subject to market failures, with numerous situations where competitive markets do not work and where natural monopoly, externalities and public goods are commonly found. Government intervention, which is often justified on the grounds of efficiency, is supposed to result in an improvement in welfare for each of these traditional instances of market failure. Cities are also locations where poverty is often concentrated and where government intervention on grounds of equity, human rights and social justice is often called for. However, the presence of some form of market failure does not always justify government intervention.
See Article Chapter Market Failures
Dear @Yuri, thanks for sharing the question. I have read twice your introductory text, and I have only bad examples from my country and my city. Corruption is on the stage. Massive corruption.
I have applied to become a member (if local government chose me!) of LAF (Local Anti-corruption Forum). I have done it because I have recognised many lobbies that bypass market rules in city to get the jobs with help of politicians, without any control...
Abuse of public procurement is in practice! We can not speak about efficiency and good outcomes of such approach.
Dear Ljubomir, I am interested in your examples of corruption! They will help to understand the overall picture.
Dear Yogesh, you confirm the importance of my guess in question. I found only abstract, but asked for the whole paper.
Dear Prof. Yuri,
These are very intelligent probing questions you have asked to comprehensively explain the tenet of the discussions. I am very pleased. Best regards
Dickson Adom
Dear Yuri,
Thank you for your add of this Question. I prefer do not talk because there are politicians who must attend these issues, and I am not politician. Thank you in any case.
Dear Mariano, is it so bad that you even do not dare to talk? I think that economists should talk, while people including politicians should listen.
The cause of market failure include things such as economies of scale, public goods, and externalities. ... Some market failure remedies are taxes, minimizing public goods, and subsidies.
Remedies of market failures pdf available in online.
Search it in Google, better search for top 5 market failures...
Thank-you
Dear Yuri Yegorov,
you proposed to consider a very important problem. I often reflected on this topic.
Currently, I, unfortunately, do not see any solutions to the problems you are considering in Russia. Certain (real) changes are needed in the formation of the legislative, executive, judicial systems. Several political parties in Russia speak about these changes. So far I see a tendency to return to the system that existed in the USSR (I mean the worst parts - elements, links, sides - of this system). But at the same time the means of production are in the hands of a small group of people who did not create them, but received them in various ways in the process of privatization of state property.
I am not a supporter of full nationalization, I am a supporter of effective reforms that will lead to higher living standards (quality of life), increase in Gross Domestic Product per capita, a reduction in the substantial income gap between a small rich group of people and poor people (beggars).
***
https://en.wikipedia.org/wiki/Means_of_production
***
" Corruption is on the stage. Massive corruption. "
" Abuse of public procurement is in practice! "
Ljubomir Jacić
Dear Prof. Zabrodskii, thank you for revealing the evidence in Russia. I understand the difficulty to provide exact examples because corruption normally is proven only in the court after lawsuit.
Dear Cecilia Lewis, you are right that we observe traffic jams and that there are also some benefits from cities because people choose to live there. But the problem is that this interaction is rather complex, people do not understand this complexity, while economists should help them to understand it in order to be able to protect their rights.
I also want to thank other participants for their comments.
I also want to attract your attention to my recent working paper, where I try to analyze decomposition of housing price index into construction cost and land rent, find how average land rent grows with city size, talk about optimal city size and suggest several policy relevant questions. Full text is here: Conference Paper Aggregate and Average Land Rent in Cities
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