What does structural failure mean in the economy

Market failure

1. Term: Deviations of the result of market coordination from the economically optimal allocation of goods and resources in the model of perfect competition. The deviations indicate a potential need for economic policy action.

2. Causes:
(1) Deviations between the actual conditions and those assumed in economic economics (substitution barriers);
(2) Insufficient marketability of goods (public goods, external effects, merit goods, rights of disposal;
(3) anti-competitive strategies in a market or anti-competitive behavior by market participants;
(4) market form of monopoly or monopoly-like structures;
(5) Macroeconomic problems of instability (business cycle, growth and structural problems);
(6) Market rejection in the event of distributional and socio-political difficulties;
(7) State failure.

3. Problem of choosing the reference model: The model of perfect competition is usually used as the reference model (Pareto optimum).

Criticisms the suitability of this model for deriving the need for economic policy action:
(1) The model assumptions are unrealistic (reproach of nirvana);
(2) Neglecting dynamic evolutionary functions of market processes in the model (competitive functions, evolutionary economy);
(3) Neglecting further economic policy goals in addition to the allocation goal.

Alternative approaches are based on an idea of ​​functional competition or workable competition (e.g. Chicago School). Imperfections, such as incomplete information or delayed adjustments, are prerequisites for the dynamic competitive process.

4. Market failure and rational economic policy: Whether economic policy should take action depends on:
(1) Correction options for economic policy actors (macroeconomic planning),
(2) direct costs of economic policy measures,
(3) Effects of the measures on other economic policy objectives.