Abstract

A major element in the success of economics is its production of simple ideas to describe many complex phenomena. Crudely speaking, mainstream economists view the world as made up of optimizing actors looking to become as wealthy as possible within the rules of the game set down by a political process. Consequently, approximating perfect markets as closely as possible is the means by which a society can achieve the greatest overall welfare from the natural competition between individuals. Economists, therefore, analyze situations in terms of their divergence from perfect markets; for example, because of asymmetric information, missing markets, returns to scale, limited property rights, and/or market power. Economists then rely on implicit rules of thumb about what can be done to overcome market imperfections, such as ‘seek to reduce entry barriers’, ‘promote public access to trade-relevant information’, and ‘avoid concentrations of market power’. Feasible interventions based on such rules of thumb might include public oversight over natural monopolies, contract enforcement, managing interest rates and the money supply, setting up new property rights, creating markets, and so forth.