TEL  Vol.4 No.7 , August 2014
An Alternative View to the Cause of Market Failures: A Dynamic Approach
Abstract: This paper presents an alternative view to the cause and size of market failures. The work here suggest that the size of the market failure is not man made per se but rather given a full set of initial conditions it is endogenous to the dynamical forces at play. It is shown that the level and variance of market failures is tied to the location of the steady state (i.e. level of development). The paper finds that only changes to the location of the steady state produces changes to the potential level of the market failure. This paper adds to the increasing body of literature the notion that institutional change is not a sufficient condition to sustained economic development.
Cite this paper: Contreras, S. (2014) An Alternative View to the Cause of Market Failures: A Dynamic Approach. Theoretical Economics Letters, 4, 548-557. doi: 10.4236/tel.2014.47069.

[1]   Pellegrini, P.L. and Gerlagh, R. (2004) Corruption’s Effect on Growth and Its Transmission Channels. Kyklos, 57, 429-456.

[2]   Jain, A.K. (2001) Corruption: A Review. Journal of Economic Surveys, 15, 71-121.

[3]   Mauro. P. (1995) Corruption and Growth. The Quarterly Journal of Economics, 110, 681-712.

[4]   Acemoglu, D. and Verdier, T. (2000) The Choice between Market Failures and Corruption. American Economic Review, 90, 194-211.

[5]   Rose-Ackerman, S. (1975) The Economics of Corruption. Journal of Public Economics, 4, 187-203.

[6]   Emerson, P.M. (2006) Corruption, Competition and Democracy. Journal of Development Economics, 81, 193-212.

[7]   Mocan, N. (2008) What Determines Corruption? International Evidence from Microdata. Economic Inquiry, 46, 493-510.

[8]   Fisman, R. and Svensson, J. (2007) Are Corruption and Taxation Really Harmful to Growth? Firm Level Evidence. Journal of Development Economics, 83, 63-75.

[9]   Easterly, W. (2000) The Elusive Quest for Growth. MIT Press, New York.

[10]   Aidt, T.S. (2006) Economic Analysis of Corruption: A Survey. The Economic Journal, 113, F632-F652.

[11]   North, D.C. (1990) Institutions, Institutional Change and Economic Performance. Cambridge University Press, New York.

[12]   De Soto, H. (2000) The Mystery of Capital. Basic Books, New York.

[13]   Le, N.H. (1964) Economic Development through Bureaucratic Corruption. American Behavioral Scientist, 8, 8-14.

[14]   Levitt, S.D. and Dubner, S.J. (2005) Freakonomics: A Rogue Economist Explores the Hidden Side of Everything. Harper Collins, New York.

[15]   Olken, B.A. (2006) Corruption and the Costs of Redistribution: Micro Evidence from Indonesia. Journal of Public Economics, 90, 853-870.

[16]   Hodgson, G.M. and Jiang, S. (2008) The Economics of Corruption and the Corruption of Economics: An Institutionalist Perspective. Journal of Economic Issues, 41, 1043-1061.

[17]   Easterly, W. (2008) Design and Reform of Institutions in ldcs and Transition Economies. American Economic Review: Papers & Proceedings, 98, 95-99.

[18]   Olken, B.A. (2007) Monitoring Corruption: Evidence from a Field Experiment in Indonesia. Journal of Political Economy, 115, 200-249.

[19]   Ghiglino, C. (2002) Introduction to a General Equilibrium Approach to Economic Growth. Journal of Economic Theory, 105, 1-17.