2007 Nobel Prize for Economics winner on free markets

[Felz]

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The standard condition for optimal provision of public goods uses the pareto concept. Which in a nutshell is entirely based upon the premise of purely voluntary transactions.

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Not exactly. To illustrate, lets say a company with monopoly power is broken up (a company with monopoly power, in mainstream economics, is one that can set the market price to some degree, generally by restricting supply). The gains in efficiency and innovation from doing this will often be so high that the monopolist can be compensated (therefore he is not made worse off) while others are made better off.

Or, government could move us towards Pareto by providing people with information that they otherwise would not have (e.g. on labeling).

Whether actual government actions like this usually improve Pareto or not is extremely debatable; what is not generally debated is that gov't can do so in principle and almost certainly has done so before.

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Your first part is describing dynamic efficiency, while pareto efficiency is purely a static concept. This is all cool and stuff but neither relevant to my quote nor relevant to the statement my quote was directed at.

The second part is referring to static efficiency, only that incomplete information isn't the only reason why markets can fail. Particularly in the public goods context information isn't the problem but positive externalities.

Of course market failure requires violation of both static and dynamic efficiency and yes mainstream economics is aware of the possibility of government failure. This all is standard textbook material really, at least where I come from.

[BCPVP]

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Lol, the market is too inefficient or stupid so this guy will figure it out for us. Pretense of knowledge FTL!

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'The market is so efficient and perfect so let's all just trust it.' Pretense of knowledge FTL!

He's a Nobel Prize winner in Economics. What's your Nobel Prize in, tenpin bowling?

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He's not the only guy to have ever won this award you know. Please forgive me if I don't bow down to someone promising that if he's given more money and power, he can "fix" the market.

[tame_deuces]

Contrary to popular belief that are usually several ways to solve complex problems, and even more opinions on how to solve them - and divided opinion on what is the best outcome. I'm fairly certain this simple principle extends into economics.

[moorobot]

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Your first part is describing dynamic efficiency, while pareto efficiency is purely a static concept. This is all cool and stuff but neither relevant to my quote nor relevant to the statement my quote was directed at.

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No. In the first part I describe BOTH dynamic ("innovation") AND pareto efficiency ("efficiency"); I used this terminology to keep in line with the definition we have been using. In the example, prices go down AND the former monopolist does not lose any income, meaning that we move close to Pareto efficiency via government action (at least one person is made better off with nobody being made worse off).

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The second part is referring to static efficiency, only that incomplete information isn't the only reason why markets can fail.

[/ QUOTE ] All I was doing was trying to give an example. I don't disagree with this at all.


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market failure requires violation of Either static OR dynamic efficiency .

[/ QUOTE ]FYP.

Finally (and I'm not saying this to be mean or confrontational) it is rather clear that you didn't take the time to understand my post before criticizing it.

[natedogg]

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Public actions don't have externalities?

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How is this relevant in the public goods context?

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I'll speak more slowly.

Public actions taken which result in provision of public goods don't have externalities?

natedogg

[pvn]

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Well, no. I can agree that what he's calling "free market orthodoxy" (which is actually nothing of the sort) is bogus without embracing his particular solution to the problem.

I think in a sense, he's right, though. Taxes can allow a "more efficient provision of (so-called) public goods" if you just adopt the same mindset that the bureaucrat does; something I want is not provided at the level I personally would like in a market allocation, I can apply coercion and force to get the predetermined "correct" number of units produced, therefore, this must be a good thing.

The problem (ignoring the moral implications) is that there is no "correct" number - no one person's preference is inherently better than another.


[/ QUOTE ]We shouldn't be ignoring moral implications, so we can stop right there. Though no one person's 'preference' may be inherently better than another, that still doesn't mean that there isn't a 'correct' number.

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Oh, good. Let's talk about moral implications.

I don't think I have the "correct" number of cars. I'm going to use force to get you to buy me another car. I really need the car, trust me, I just told you that I don't have the correct number.

What do you think of the moral implications of that?

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Instead of making a ridiculous analogy, why don't you just say what it is that you actually mean to say.

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Why don't you start, since you dragged "moral implications" into this?

You could begin by explaining why my analogy is ridiculous.

[pvn]

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Do you guys really think that a completely free market would result in some sort of utopia?

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No. Are you going to argue on merits or just try to throw ad hominem around?

[pvn]

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Lol, the market is too inefficient or stupid so this guy will figure it out for us. Pretense of knowledge FTL!

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'The market is so efficient and perfect so let's all just trust it.' Pretense of knowledge FTL!

He's a Nobel Prize winner in Economics. What's your Nobel Prize in, tenpin bowling?

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I thought you wanted to talk about moral implications.

Let's do it.

Efficiency is a black hole. You can't ever settle this question objectively because in order to do so you have to be able to quantify all of the participants' subjective personal preferences. Part of the reason this is impossible is that people can only rank their preferences ordinally, and to compare across individuals you would need some sort of cardinal quantification.

If you can crack that nut, you can get your own nobel prize.

Let me know when you win, I'll attend the ceremony.

[The once and future king]

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You could begin by explaining why my analogy is ridiculous.

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I dont think your analogy fits because cars are a private good. This guys theories relate entirely to the provision of public goods.

This whole thread is pretty pointless unless someone can supply an explanation of how the prize winner differentiates between private and public goods, because therein would seem to lie the rub.

[Felz]

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No. In the first part I describe BOTH dynamic ("innovation") AND pareto efficiency ("efficiency"); I used this terminology to keep in line with the definition we have been using. In the example, prices go down AND the former monopolist does not lose any income, meaning that we move close to Pareto efficiency via government action (at least one person is made better off with nobody being made worse off).

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I only was referring to dynamic efficiency as this was what you introduced into the discussion. The reason I wasn't really dropping more than one line on this is a) your example is not connected to market failure and therefore not really relevant to this thread and b) a pareto efficient market outcome obviously won't make the monopolist better off even with the dynamics of innovation and investment.


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market failure requires violation of Either static OR dynamic efficiency .

[/ QUOTE ]FYP.

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Thanks for fixing a correct statement and turning it into something wrong.


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Finally (and I'm not saying this to be mean or confrontational) it is rather clear that you didn't take the time to understand my post before criticizing it.

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I took as much time as a cost-benefit-analysis allowed for, LDO.