Free markets of regulation? Ideal free markets result in economically efficient allocations. Property rights and enforceable contracts are two necessary conditions for a free market structure to be viable.
Nevertheless, property rights and enforceable contracts are not always available and the presence of externalities can lead to market failures in such situations.
What do economists mean when they talk about externalities?
What are the welfare implications of such externalities?
Can interventions improve the welfare conditions of the agents?
Free markets of regulation? Externalities can lead to inefficient economic allocations. One remedy in such occasions is for the government to intervene and define a clear structure (new market) in which property rights can be traded.
Nevertheless, when property rights are non-excludable and should be split among more than one interested party, coordination difficulties become severe and attempts to organize (missing) markets can completely fail.
What characteristics lead to market provision failures?
What are the welfare implications of such failures?
Are there alternative production plans that can be used to produce such products and services?