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Are Consumer Decision-Making Phenomena a Fourth Market Failure
September 27, 2015 | Journal Article
Authors: Pete Lunn Journal of Consumer Policy , Vol. 38 , Issue 3 , September , 2015
This paper challenges the increasingly common view that the findings of behavioural economics constitute a fourth type of market failure. It shows how many behavioural phenomena, while they do imply departure from the standard competitive market model, undermine the use of this idealized model for policy analysis. A case study of the three-part tariff illustrates two problems: the validity of inferring that consumers? choices after an intervention are superior to previous choices and the potential for distributional consequences when policy alters choice. These issues make behavioural phenomena fundamentally different from the standard market failures, as the deductive theoretical framework can no longer provide criteria to determine whether a policy improves consumer welfare. Thus, conceiving of behavioural phenomena as another form of market failure is to underestimate their implications for policymaking.
ESRI Series Number: 201502 Research Area:Behavioural Economics Date of Publication: September 27, 2015 Published Online: January 07, 2015 Publisher: Springer Place of Publication: View External Link
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