2003/26 LEM Working Paper Series

On the Complexities and Limits of Market Organization
Richard R. Nelson
Markets, Regulation, Public Support.

The last quarter-century has seen the rise of an almost religious belief in the efficacy of market organization of economic activity. While there are strong empirically supported reasons for a bias toward market organization, particularly considering the alternatives, there are many areas of economic, social, and political activity where simple market organization is highly problematic. When we use markets in these areas, market organization tends to be supplemented by regulation and other nonmarket structures. There are a number of areas where we fence out markets, and use other forms of organization and governance. There used to be in economics a strong understanding of the limits of market organization, and the complex structures that in many cases were needed if markets were to work well. The purpose of this essay is to rekindle this understanding.

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