Market Failure In Market Research

Introduction

Market failure is when the market does not allocate resources on its own efficiency in a way that balances social costs and benefits. It has negative welfare implications not only in the abstract world of economics research, but also in the very concrete world of real societies. Market failure blocks development options and thus creates barriers to growth.

This is the reason why the Government should always seek for measures to address serious market failures that occur in New Zealand economic context and policy advisors are ought to reflect various civil and cultural context into the decision-making thought processes.

In this Policy Brief, we will identify several steps to establish that traffic congestion is a market failure,

Source: Economics Online

Is traffic congestion a market failure?

Traffic congestion can be analysed through the consideration of the road network being a common property resource, and as such, people being able to freely use them with little restriction. Being a common and a scarce resource, this will mean that the more private individuals use road space, the less is available for use by others. An additional road user will increase the journey times of others on the same road network.

Consequently, this additional user is imposing a negative externality on other road users over and above the time costs the additional user faces.

By imposing negative externalities, traffic congestion is creating external costs. The external costs include:

- Extra travelling time

- Increased business costs

- Emergency services, such as ambulances, police-cars and fire engines, finding harder to function

The benefits will seek to charge for the full economic, environmental and social costs of road use, and places more of the true cost of driving back onto road users.

Potential Costs

All of the above measures must be set against tests such as the costs of implementation, lost revenue to firms who rely on traffic, loss of jobs in the car industry. Considering New Zealand’s strong preference for cars, policies that discourage using cars may not acquire enough support to be introduced. Problems such as the costs of implementation and change in traffic volumes in alternative roads are also worth considering.

Recommendations

Despite

Addressing market failure is about getting markets to perform more efficiently or optimally in the way that resources are allocated or decisions are made.

It is encouraged that the Government conducts a thorough research on the approaches suggested in light of the New Zealand’s economy and culture. Having a look at other countries’ examples – for example Singapore, the United Kingdom, Sweden etc. with tax measures in place to resolve congestion – will also be