Philosophy of Finance Fellowship Program
Philosophical Assumptions of the Market
Spring 2021: The Notion of Market Failure
The Fellowship's theme for this academic year is “Philosophical Assumptions of the Market." The Fall Fellowship focused on assumptions about market participants, and this Spring, the Fellowship will specifically explore the concept of market failure.
The notion of market failure entails philosophical assumptions about the efficiency of markets and the role of government. The problem of incomplete information, for example, gave rise to two entirely different conclusions, namely Hayek’s theory of prices as market signals, whereby the market itself resolves the issue, and Stiglitz’s theory of “information imperfection” which he presents as evidence of chronic market failure.
In this seminar, we will look at market failures such as incomplete information, imperfect competition, technology lock-in, and externalities.
Our goal this semester is to question these assumptions and gain an objective understanding of the topic of market failure. To that end, we will read some of the classic essays on market failure by leading economists who enter into a debate about the existence and extent of supposed market failures.
The discussions will be facilitated by Dr. Michael T. Kane, program director, with visiting presentations by Penn and Wharton faculty. Dr. Kane is both an historian of philosophy and a professional investor, having founded and managed Kestrel Investments for over 15 years. Dr. Kane is also a lecturer in Penn's Economics Department. Please contact Dr. Kane at mkane@collegiuminstitute.org if you have any questions.
Syllabus
January 22 — The classic statement of the problem. Reading: “The Anatomy of Market Failure” by Francis Bator.
February 12 — Information and invention: The Arrow-Demsetz debate. Readings: “Economic Welfare and the Allocation of Resources for Invention” by Kenneth Arrow and “Information and Efficiency: Another Viewpoint” by Harold Demsetz.
February 26 — The inefficiency of competitive markets. Reading: “Keynesian economics and critique of the first fundamental theorem of welfare economics” by Joseph Stiglitz.
March 19 — Technology “Lock-In.” Reading: “Path Dependence, Its Critics, and the Quest for ‘Historical Economics’” by Paul David.
April 9 — Externalities. Reading: “The Problem of Externality” by Carl J. Dahlman.
Time: 3pm EST via Zoom.
Readings: The readings are posted above.
