The problems we considered in these chapters arise in many different markets, but they share a common theme. In all cases, the market fails to allo- cate resources efficiently because property rights are not well established. That is, some item of value does not have an owner with the legal authority to control it. For example, although no one doubts that the “good” of clean air or national defense is valuable, no one has the right to attach a price to it and profit from its use. A factory pollutes too much because no one charges the factory for the pollution it emits. The market does not provide for national defense because no one can charge those who are defended for the benefit they receive.
When the absence of property rights causes a market failure, the government can potentially solve the problem. Sometimes, as in the sale of pollution permits, the solution is for the government to help define prop- erty rights and thereby unleash market forces. Other times, as in restricted hunting seasons, the solution is for the government to regulate private behavior. Still other times, as in the provision of national defense, the solu- tion is for the government to use tax revenue to supply a good that the mar- ket fails to supply. In all cases, if the policy is well planned and well run, it can make the allocation of resources more efficient and thus raise economic well-being.
