Microeconomics For Dummies

Chapter 14

Examining Market Failure: Pollution and Parks

In This Chapter

Identifying why the market fails to produce what people want

Figuring out how to get the market to produce what people like

The well-known economist Nicholas Stern wrote in 2007 in a report commissioned by the U.K. government that climate change “is the greatest market failure the world has ever seen.” He estimated that the costs of climate change if not addressed would be equivalent to losing between 5 and 20 percent of global gross domestic product each year, now and forever. Those are more than stern (no pun intended) words. Environmental damage is a market failure and we need to understand how the market is failing us.

On a cheerier environmental note, Grand Teton National Park is a pristine ecosystem enjoyed by people from across the United States and beyond. However, such a natural treasure owes its heritage not to the marketplace but to the intervention of the Rockefeller family (who did well in the market). In the 1920s, John D. Rockefeller established a blind trust and spent $1.5 million secretly buying ranches in the valley with the intention of creating a park to be enjoyed by everyone. The Rockefeller family has a long tradition of supporting national parks through philanthropy. They’ve established ...