Market Failure

Roger Bate, at the American Enterprise Institute, takes CGD to task for what he says is a misconception about market failure. Owen's comment: Roger tells me that he supports the advance market proposal, but is worried about the use of the term market failure. As Roger says, the essential problem is that people in developing countries are poor; and the inability of a market to serve poor people is not, in itself, a market failure. But our analysis shows that there are important market failures here: because knowledge is non-rival, because of time-inconsistency in procurement, and because of disease spill-overs. The advance market proposal addresses these market failures in a way which creates incentives for investment in R&D (a public good) while ensuring that the price does not prevent access to essential medicines when they are developed.