Markets and Public Good

http://uk.reuters.com/article/reutersEdge/idUKNOA63183020071016

"Societies should not rely on market forces to protect the environment or provide quality health care for all citizens, a winner of the 2007 Nobel Prize for economics said on Monday.

...

"The market doesn't work very well when it comes to public goods," said Maskin, a slight, soft-spoken 57-year-old who lives in a house once occupied by Albert Einstein."

Market forces (ideally) seek local maxima of return vs costs. Returns and costs, in theory, can be quantified as units of, well, nearly anything from money to effort, to comfort to pain.

Unfortunately, there are many examples where market forces can not lead to the best outcome for the greatest number since the best outcome for the greatest number would require a scenario or action that the market would never take for reasons of its own definition.

Some of these things are obvious. For example, a national armed force, to be affective, must be a public resource operated by a government. Market forces alone have a very checkered record when it comes to creating agents of private violence. Market forces would never create a national army capable of activities that benefit the nation as a whole.

Another consideration is that governments do something well that market forces do not, and in fact that market players actually have an incentive not to do - standardize. Witness VHS vs Beta and Blu-Ray vs HD-DVD... Compare this this systems that have been developed in an environment where the playing field has been defined by a player not directly involved in the market setting a standard; the phone system, railroads, interstate highways, and the internet.

The USPS delivers mail throughout the US (and overseas military bases) for a set of flat rates. No privatized delivery service would ever do this. As a nation, as a group, we place a value on having one price to deliver a letter anyplace in the US in a more or less consistent time frame. Yet, those are exactly the variables that a market-based service would adjust in defining a business plan. Clearly the point of market efficiency (best service for the most people for the lowest price) would fall on a curve of price, speed, geographic location and other factors. That curve assures a variable experience and/or price among possible individual customers.
Not value of a uniform price and service, which is a collective value, has no value in such a cost-benefit analysis.

To adjust for this, an outside force must adjust the playing field to create a value in a configuration that would normally not be part of the equation, such as a requirement of uniform price, or a standardized address system. Then market forces work much better for everyone.

And besides, one of those guys lives in Albert Einstein's old house.