Market Failure Restoration: A New Blueprint for Public Policy

Standard economic models often look perfect on a whiteboard, but real-world markets routinely fail to allocate resources efficiently. This paper looks at why that happens, connecting classic problems like pollution with institutional roadblocks, network monopolies, hidden information, and the quirky ways humans actually make decisions (bounded rationality). We look closely at the climate crisis, which isn’t just one big economic problem, but a messy cluster of them: unpriced carbon emissions, severe corporate underinvestment in green research and development, and the chicken-and-egg dilemma of building clean infrastructure. By looking at the tension between market breakdowns and flawed political solutions (“government failures”), we build a practical guide for policy design. Our main takeaway is that silver-bullet solutions, like a single carbon tax, cannot fix the system on their own. Instead, fixing deep-rooted market failures requires a smart, coordinated mix of carbon pricing, clean-tech research and development subsidies, and systemic infrastructure updates.

Keywords: Market Failure, Externalities, Climate Economics, Bounded Rationality, Coase Theorem, Institutional Economics.