Answer questions 2 and 3 based on the following passage: Markets are superb coordination mechanisms in harmonizing numer

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Answer Questions 2 And 3 Based On The Following Passage Markets Are Superb Coordination Mechanisms In Harmonizing Numer 1 (152.67 KiB) Viewed 24 times

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Answer questions 2 and 3 based on the following passage: Markets are superb coordination mechanisms in harmonizing numerous non- cooperative interactions and in disciplining inefficiency and rewarding high value performance. But when incentives and control rights are misaligned (on account, say, of initial asset ownership differences constraining contractual opportunities), and there are important strategic complementarities in long-term investment decisions, markets fail to coordinate efficiently. The implications of 'imperfections' in, and sometimes the non-existence of, credit and insurance markets are severe for the poor, sharply reducing a society's potential for productive investment, innovation, and human resource development. The state can provide leadership for (and put selective incentives and pressure on) individuals interacting cooperatively in situations where non-cooperative interactions are inefficient. But the state officials may have neither the information nor the motivation to carry out this role; they may be inept or corrupt, and the political accountability mechanisms are often much too weak to discipline them. In the context of these pervasive market and government failures it is often pointed out that a local community rganization, if it has stable membership and well-developed mechanisms of transmitting private information and enforcing social norms among its members, has the potential to provide sometimes more efficient coordination than either the state or the market. But community organizations 'fail' too when they are 'captured' by elite (or 1 sectarian) interests, or are hamstrung by the secession of the rich and the talented from local communities, and they may face covariate risks and costs of small scale. [from Institutional Economics of Development: Some General Reflections by Pranab Bardhan in in T. Besley and R. Jayaraman (eds.), Institutional Microeconomics of Development, MIT Press, 2010.] 2. According to the author, which allocative mechanism is free from the risk of coordination failure? a. Market b. State c. Community d. None of the above 3. Which of the following is not a source of government failure? a. Inadequate information b. Lack of private incentive for public action c. Externalities. d. Weak accountability