1---
 2meta: 
 3  date: false
 4  reading_time: false
 5title: "Missing Market"
 6date: 2023-10-10
 7description: "The absence of a market for trading a good."
 8tags: ["Economics", "Market Failure", "Externalities", "Pareto Efficiency"]
 9---
10
11## Background
12
13The concept of a missing market arises when there is an absence of a marketplace or system where a certain good or service can be traded. This gap can result from various factors such as legal restrictions, lack of demand, or inherent nature of the good or service.
14
15## Historical Context
16
17The term "missing market" became more prominent as economic theories evolved to explore market efficiencies and failures. Early economic thought primarily focused on existing markets and their imperfections, but as theoretical frameworks expanded, economists began examining the implications of markets that should theoretically exist but do not.
18
19## Definitions and Concepts
20
21A missing market refers to a situation where no viable market exists to facilitate the exchange of particular goods or services. These can primarily include future goods, contingent commodities, and goods impacted by externalities.
22
23- **Future Goods:** Items that cannot be traded because the transactions involve people who have not yet been born.
24- **Contingent Commodities:** Goods whose markets do not exist due to private information that makes it challenging to confirm contingencies critical for these markets.
25- **Externalities:** Costs or benefits that affect third parties and for which no market transaction exists.
26
27## Major Analytical Frameworks
28
29### Classical Economics
30
31Classical economists typically focused on market efficiencies predominantly in existing markets. Missing markets were generally not addressed in depth within this framework.
32
33### Neoclassical Economics
34
35In neoclassical economics, the significance of missing markets is acknowledged as it challenges the assumptions of complete markets, thereby leading towards market failure.
36
37### Keynesian Economics
38
39Keynesian economics focuses on market deficiencies and government intervention, where missing markets are a type of market failure that can be rectified minimally through policy intervention.
40
41### Marxian Economics
42
43From a Marxian perspective, missing markets may be seen as part of the broader market deficiencies inherent under capitalism, where some segments of economic activity and need are not met.
44
45### Institutional Economics
46
47Institutional economics studies how institutions affect economic behavior, including how legal and regulatory frameworks can lead to missing markets.
48
49### Behavioral Economics
50
51Behavioral economists examine how psychological factors and human behavior impact the creation and non-creation of markets.
52
53### Post-Keynesian Economics
54
55Post-Keynesian Economics emphasizes structural imperfections, and missing markets are seen as key factors contributing to these imperfections requiring active regulation.
56
57### Austrian Economics
58
59Austrian economists might argue that missing markets are a result of incomplete information and suggest that time and innovation can eventually create these markets.
60
61### Development Economics
62
63Development economists focus on how missing markets impact economic development and strategies to mitigate such gaps to promote inclusive growth.
64
65### Monetarism
66
67Monetarist perspectives would look into how missing markets affect monetary supply, price stability, and the overall economy.
68
69## Comparative Analysis
70
71Comparing different schools of thought provides varied solutions and viewpoints on missing markets ranging from regulatory interventions, creating legal frameworks, boosting innovations, or leaving the gaps to be filled naturally through market forces over time.
72
73## Case Studies
74
75### Labor Market Restrictions
76
77Legal frameworks prohibiting future labor contracts to avoid de facto slavery create a missing market in future labor trades.
78
79### Environmental Goods
80
81Markets for clean air and water are missing due to the complexities in transactional evidence and externalities.
82
83### Insurance Markets
84
85In some countries, the absence of earthquake insurance could be due to inadequate demand and private information on risk factors hence demonstration through missing market.
86
87## Suggested Books for Further Studies
88
89- **"Markets, State, and People: Economics for Public Policy" by Diane Coyle**
90- **"Microeconomic Theory" by Andreu Mas-Colell, Michael D. Whinston, and Jerry R. Green**
91- **"Market Failure and the Failure of Distributive Justice" by John E. Roemer**
92
93## Related Terms with Definitions
94
95- **Market Failure:** A situation in which the allocation of goods and services by a free market is not efficient.
96- **Externalities:** Costs or benefits that affect third parties which are not reflected in the market prices.
97- **Pareto Efficiency:** An economic state where resources are allocated in the most efficient manner without making anyone worse off.