The Limits of Market Organization.

Author:King, Kerry
Position:Book review

The Limits of Market Organization, edited by Richard R. Nelson. New York: Russell Sage Foundation. 2005. Hardcover: ISBN 0 87154 626 4, $45.00. 386 pages.

In the introduction, the editor Richard R. Nelson appropriately uses the analogy of "one shoe does not fit all feet" when referring to the many activities of modern economies, and states that "there is no single form of organization and governance" that can appropriately deal with all of them. Nelson begins by reinforcing the idea that in some instances, market organization works fine, but also points out that using it as the "default" solution often creates bias due to its complexities and limitations as a governing structure. At times, it seems that various authors devote much more effort to listing the benefits of government intervention than focusing on the limits of market organization, however; overall, I found the chapters to contain a fair description of both the role of government and the role of markets in our economic system. The book is divided into four sections, which are grouped based on both the economic sector, and the economic conditions under which market inefficiencies may exist.

The first section focuses on those activities, which are considered infrastructure: electric power, telephone service, passenger rail service, and bank funds clearing. The authors in both the electricity and telecommunications chapters focus on the recent push toward greater competition in these industries and the importance of the incentive structures that result due to this change. Both authors point to the use of institutional rules as a way to help create the proper incentive schemes that markets may be incapable of producing on their own as these industries continue to become more competitive. The last two chapters of this section, which deal with passenger rail service and bank funds clearing, both question the legitimacy of privatization in their respective industries. For the most part, both authors advocate using a mix of public and private sector strategies with the public goods argument as the basis for government intervention.

Section two addresses topics that have a tendency to be more controversial when it comes to the role of markets versus the role of the state. This section covers the issues of primary and secondary education, preschool child care, and medical care. The authors in these three chapters seem to agree that fairness would dictate a role for the government when it...

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