Question

Whats is Market failure caused by lack of recording/registration of ownership? Give an example

Answer 1

Markets are efficient when property rights or registration of ownership are well defined. In the case of externality, if registration of ownership are not well defined, then there will be a market failure. because in the absence of property rights, there will be misuse of scarce resources such as spilling oil in the sea which harms fishes, so there will be a negative externality for fisher firms because if registration of ownership are not well defined then fisher firm have to clean the oil from sea to protect fishes from damage. In the lack of registration of ownership there will be Over-use of resources, such as over-fishing, and traffic congestion.

For Example- there are two firms, steel firm and fishing firm. suppose steel firm is near by sea. and steel firm is creating pollution for fishing firm, if registration of ownership are not well defined then steel firm do not cares about pollution. if  registration of ownership are well defined for fishing firm, then fishing firm will charge from steel firm for creating pollution. and then steel firm will produce less pollution. and in this case market do not fails.