Last edited 19 Mar 2021

Market failure

The Green Book, Central Government Guidance On Appraisal And Evaluation, Published by HM Treasury in 2020, suggests: ‘Market failure occurs where, a market is unable to function fairly according to the economic ideas of efficient markets, from a Green Book perspective which looks beyond simply economic efficiency this means the market is unable to provide satisfactory levels of welfare efficiency.’

The 2018 Green Book stated that market failure is: ‘…where, for one reason or another, the market mechanism alone cannot achieve economic efficiency.’

The Industrial Decarbonisation Strategy published by HM Government in March 2021, states: ‘Market failure is where the market mechanism alone cannot achieve economic efficiency. Economic efficiency is achieved when nobody can be made better off without someone else being made worse off. Economic efficiency enhances social welfare by ensuring resources are allocated and used in the most productive manner possible. One potential cause of inefficiency is when the private returns to an individual or firm from carrying out a particular action or activity differs from the returns to society as a whole, meaning there are external costs or benefits.’

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