Market Failure:

Public Goods and Public-Private

Partnership Projects
Cariño | De Guzman | Lugod | Patubo | Rodaje
What is Market Failure
Recall:
Pareto efficiency - any one individual being better off
without making at least one individual worse off.
(investopedia.com)
What is Market Failure
• Below Pareto efficiency
• Individuals with rational self-interests that produce
economically inefficient outcome
• supply and demand do not produce quantities where
price reflects marginal benefit of consumption
(lumenlearning.com)
Examples of Market failure
• Externalities
– Positive
– Negative
• Monopoly
• Information Asymmetries
• Factor Immobility
(investopedia.com)
What are Public Goods
• Non-excludability – difficult to prevent non-
payers from using them
• Non-rivalry – one person’s consumption does not
diminish the ability of others to consume it
(David Hume)
What are Private Goods
• produced by a privately owned business purchased
to increase the utility of buyers
• exist along a continuum of excludability and rivalry
• prices are determined by the market forces of supply
and demand
(investopedia.com)
What are Merit Goods
• Commodity that an individual or society should
have based on their need and not on their
willingness to pay
• (lumenlearning.com)
What are Public-Private
Partnerships
• partnership of government and private sectors
deliver goods and services to the public
• allows redirection of government funds and
reduce order costs
(britannica.com)
Elements of Public-Private
Partnerships
• Strategic mode of procurement
• Contractual agreement
• Shared risks and resources
• Value for Money
• Outcome orientation
• Acceleration of infrastructure provision and faster
implementation
(ppp.gov.ph)