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CHAPTER ELEVEN: Public Policy When Markets Fail: Welfare, Health, and the Environment

Study

States respond differently to market failure and questions of how to properly intervene in the market to maximize the well-being of their citizens. Common causes of market failure are externalities, imperfect information, and failing to fulfill important social values. These market failures and the policy responses to them are explored in this chapter through three areas of government intervention: welfare, health, and the environment.

Governments develop social policies in part to respond to the market's failure to distribute wealth in socially acceptable ways that reduce poverty or inequality or both. Different countries make different choices about how to approach social policy. The policies of social democratic welfare states, social insurance states, Christian democratic welfares states, and liberal welfare states have different implications for citizenship and for people's participation in the workforce and in society.

The case of health care illustrates problems with imperfect information and inequality. Much of the world has adopted the idea of health care as a social right of all citizens regardless of their position in the market. While wealthy countries deal with cost control, poor countries struggle with access.

Environmental issues provide classic examples of externalities. To deal with this market failure, different policy responses internalize costs in different ways, resulting in different people paying those costs. Increasingly, it appears that governments will need to work together to forge common policy responses to global environmental challenges.