publics goods. If we wish to preserve and protect such goods, something other than economics market will be needed as our policy mechanism.
A third type of market failure occurs in situation in which individual pursuit of rational self – interest the sort of behavior required by competitive markets results in a worse outcome than what would have occurs had the parties ‘behavior been coordinated, either through cooperation or regulation So- called prisoners’ dilemma cases are examples of situations in which cooperation has a more optimal outcome than competitive.6 But perhaps more common are situations in which individual rationality results in public harms.
Important ethical and policy question can be missed if we leave policy decision solely to the outcome of individual decisions. This problem arises for many issue in business ethics, particularly for health risk involved in such things as exposure to workplace chemicals, consuming food treated with pesticides or food additives, drinking water that contains nitrates and chemical residues, or pollution that results from the individual choice of numerous consumer. As a particular example, consider the decision involved in choosing to drive a low-mileage sports utility vehicle.
Of course, defenders of market solutions have ready response to these challenges. Even free market defenders could support regulation that would require business to internalize externalities. Presumably they would support legislation to create shadow prices for unpriced social goods or for exempting such goods from the market, as when national parks and wilderness areas are set aside as public lands. The law is also the appropriate mechanism for address law is the obvious remedy for social harms resulting from market failures. Once again, as Friedman says, as long as business obeys the law it meets its social responsibility by responding to consumer demand in the marketplace.
But there are good reasons for thinking that such ad hoc attempts to repair market failures are socially inadequate. First is what I call the first-generation problem. Markets can work to prevent harm only through information supplied by the existence of market failures. Only when fish populations in the North Atlantic collapsed did we learn that free and open competition among the world’s fishing industry for unowned public goods failed to prevent the decimation of cod, swordfish, Atlantics salmon, and open competitions. Only when workers died fro, exposure to such workplace pollutants as asbestos and coal dust, and only when consumers died from exploding fuel tanks and contaminated food products, did society learn about the dangers of these situations, only by sacrificing the first generation as a means for gaining this information. When public policy involves irreplaceable public goods such as public health and safety, such as a reactionary strategy is ill-advised
Thus, there are reasons to doubt the utilitarian rationale for the classical model. The well-established existence of various markets failures shows that there is no guarantee that market attain the utilitarian goals at which they aim. A close consideration of the consequences of even an efficiently functioning market suggests that these consequences