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Using a country of your choice as an example demonstrate how the government seeks to compensate for market failures.(Japan) - Essay Example

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Market failures occur when markets fail to allocate resources systematically to their most valued use. The main types of market failures can be of four types – those associated with the public goods, spillovers (externalities), market power or imperfect information (Rama and Harvey, 2009)…
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Using a country of your choice as an example demonstrate how the government seeks to compensate for market failures.(Japan)
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"Using a country of your choice as an example demonstrate how the government seeks to compensate for market failures.(Japan)"

Download file to see previous pages Externality effects would gradually become global as globally integrated markets develop. As externalities become huge they pose challenge to achieving macroeconomic stability which in turn challenges the international political architecture. ‘Efficient’ allocation of resources according to economists implies that all possible mutually beneficial trades have been exhausted (Holtom, 2011). This means that proper coordination between willing buyers and sellers has been accomplished. The nature and extent of market failure determines the role that government would play and whether government intervention is at all necessary. Markets rarely correspond to the ideals of a perfectly competitive market as defined by the economic theory (Rama and Harvey). These imperfectly competitive markets may have efficiently allocated resources to derive the best value. Certain conditions termed as ‘market failures’ render government intervention necessary. While failure to systematically allocate resources is evidence of inefficient allocation of resources but this is not sufficient reason to justify government intervention. Government intervention in markets can be costly and the benefits must far outweigh the costs if government were to intervene. However, some governments believe that the role of government is benevolent during such externalities (Dolfsma, 2011). In fact institutional economics believe that market cannot function unless they are embedded in a broader set of interrelated institutions. However, government interventions can reduce efficiency through unintended consequences such as distortionary taxes, special interests or maybe just simple errors of judgment (Holtom, 2011). All market failures do not warrant policy action and hence the cost-benefit analysis is essential. A market-oriented economy may produce income inequalities. A person may produce some very efficient product which benefits the society but there is no gain for the poorer people of the society. Moreover it is not possible to exclude non-payers from utilizing a ‘public good’. However, market failures occur when an inefficiently high or low amount of good in question is produced and is directed to markets where they do not receive the desired value (Holtom, 2011). This reduces in value the perfect market conditions. This can be applied to the entertainment and the theme park industry in Japan. Japan is known for the largest global growth for theme parks and the amusement industry. Tokyo Disneyland (TDL) demonstrated solid performance and made a substantial impact on the host economy (Kawamura and Hara, 2010). Being part of the tourism industry they brought in extensive cash flow from the non-resident tourist. However, the rush of theme parks in Japan overlapped with the bubble economy in the late 1980s and early 1990s. Local governments in Japan suffered as an effect of deindustrialization following the bubble economy. Market failures in the theme park industry led to government intervention in several ways but these were found to be counter productive. To revitalize the local economy the development of theme parks was considered essential. Resources were inefficiently allocated to make the theme parks sustainable and help the local economies. Abundance of construction loans were given for theme parks. In addition, the central governments paid subsidies to the local governments and the ...Download file to see next pagesRead More
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