Voluntary Solutions to Market Failure

This chapter considers voluntary solutions to market failure—how to make markets work better without resorting to coercion by government. It explores the likelihood of cooperative solutions to the free-rider or collective action problem. The chapter addresses whether voluntary action can resolve problems of market failure. The Prisoners' Dilemma is a classic illustration of a negative-sum game—how two parties acting independently out of self-interest may be destined not to cooperate, much to their mutual detriment. Calabresi has argued that if transactions costs are high enough to snuff out voluntary solutions altogether, negotiations should not be undertaken because they would reduce efficiency, and the market would not have failed after all. Transactions costs may be very different for the various parties who might be involved in a bargaining process. Many Americans also provide money and time in support of public interest groups.