Public‐Value Failure: When Efficient Markets May Not Do

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Abstract
The familiar market‐failure model remains quite useful for issues of price efficiency and traditional utilitarianism, but it has many shortcomings as a standard for public‐value aspects of public policy and management. In a public‐value‐failure model, I present criteria for diagnosing values problems that are not easily addressed by market‐failure models. Public‐value failure occurs when: (1) mechanisms for values articulation and aggregation have broken down; (2) “imperfect monopolies” occur; (3) benefit hoarding occurs; (4) there is a scarcity of providers of public value; (5) a short time horizon threatens public value; (6) a focus on substitutability of assets threatens conservation of public resources; and (7) market transactions threaten fundamental human subsistence. After providing examples for diagnosis of public‐values failure, including an extended example concerning the market for human organs, I introduce a “public‐failure grid” to facilitate values choices in policy and public management.