A Guide for Students and Teachers
Elgar original reference
Edited by Richard Watt
Chapter 4: The fair use doctrine: markets, market failure and rights of use
Markets are most acceptable when they serve efficiency and other goals. It is only under transaction-costless conditions of perfect knowledge, flawless and cost-free enforcement, full monetization, and instantaneous ability to organize and negotiate, that markets are guaranteed to generate efficient outcomes. And even then, markets could fall short as social tools, because goals other than allocative efficiency may fail to be met. However, neither the real-world inaccessibility of ‘perfect’ market conditions nor the importance of non-monetizable social goals requires us to jettison the use of markets. To decide if markets should be used, they need to be compared with their institutional alternatives, and all institutions are imperfect. In addition, there are ways to improve markets’ functioning. One device for improving their functioning is to create exceptions (in appropriate circumstances) to the property rules on which the troublesome markets rest. A substantial economic literature discusses the nature that these exceptions can take, in particular, the comparative merits of rules versus standards. Rules are hard-edged and definite, easily known in advance. Standards are open-textured, their applicability decided upon as cases arise, and their results harder to predict.
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