Market failure exists when the competitive outcome of markets is not
efficient from the point of view of the economy as a whole. This is
usually because the benefits that the market confers on individuals or
firms carrying out a particular activity diverge from the benefits to
society as a whole.
Climate change is a result of the greatest market failure that the world has seen, Sir Nicholas Stern, whose review last year warned of the economic and social costs of climate change, said tonight.
Delivering the Royal Economic Society (RES) public lecture in
Manchester, ahead of next week's world summit on climate change in Bali,
Sir Nicholas said targets and trading must be at the heart of a global
agreement to reduce greenhouse gas emissions.
"The problem of climate change involves a fundamental failure of
markets: those who damage others by emitting greenhouse gases generally
do not pay," said Sir Nicholas.
"Climate change is a result of the greatest market failure the world
has seen. The evidence on the seriousness of the risks from inaction or
delayed action is now overwhelming. We risk damages on a scale larger
than the two world wars of the last century. The problem is global and
the response must be a collaboration on a global scale."
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Market failure and government failure (Revision)
