What does structural failure mean in the economy
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.
(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.
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