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Are Consumer Decision-Making Phenomena a Fourth Market Failure?. ESRI WP455. April 2013

Lunn, Pete (2013) Are Consumer Decision-Making Phenomena a Fourth Market Failure?. ESRI WP455. April 2013. [Working Paper]

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    Abstract

    This paper challenges the increasingly common view that the findings of behavioural economics constitute a fourth type of market failure. The market failure framework elevates the standard competitive market model to the status of an ideal. It provides us with tools to identify departures from the ideal model and to deduce a direction policy might take to restore it. Many behavioural phenomena also imply departures from the ideal model. Yet rather than allowing us to deduce a good direction for policy, the findings question the legitimacy and usefulness of this deductive theoretical framework for policy analysis. Two policy problems are highlighted here: the validity of inferring that consumers’ choices after an intervention improve outcomes relative to their previous choices, and the potential for distributional consequences when policy alters consumers’ choices. The paper concludes that, given these problems, conceiving of the relevant behavioural phenomena as an additional form of market failure is potentially to misunderstand their implications for consumer and competition policy.

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    Item Type: Working Paper
    Subjects for non-EU documents: EU policies and themes > Policies & related activities > economic and financial affairs > Single Market > general
    Subjects for EU documents: UNSPECIFIED
    EU Series and Periodicals: UNSPECIFIED
    EU Annual Reports: UNSPECIFIED
    Series: Series > Economic and Social Research Institute (ESRI), Dublin > ESRI Working Papers
    Depositing User: Alyssa McDonald
    Official EU Document: No
    Language: English
    Date Deposited: 24 Oct 2019 12:02
    Number of Pages: 19
    Last Modified: 16 Feb 2020 15:20
    URI: http://aei.pitt.edu/id/eprint/88043

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