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The familiar market-failure model remains quite useful for issues of price efficiency and traditional utilitarianism, but it has many shortcomings as a standard for public-value aspects of public policy and management. In a public-value-failure model, I present criteria for diagnosing values problems that are not easily addressed by market-failure models. Public-value failure occurs when: (1) mechanisms for values articulation and aggregation have broken down; (2) "imperfect monopolies" occur; (3) benefit hoarding occurs; (4) there is a scarcity of providers of public value; (5) a short time horizon threatens public value; (6) a focus on substitutability of assets threatens conservation of public resources; and (7) market transactions threaten fundamental human subsistence. After providing examples for diagnosis of public-values failure, including an extended example concerning the market for human organs, I introduce a "public-failure grid" to facilitate values choices in policy and public management.
"If markets be ends as well as means, their nonefficiency is hardly sufficient ground for rejection. On the other hand, efficient markets may not do, efficiency of the `invisible hand' does not preclude preference for other efficient modes of organization, if there he any" (Bator 1958, 378-79).
Introduction
Throughout the world, in nations at all levels of political and economic development, policy makers seek to determine whether particular bundles of goods and services are best provided by government, the private sector, public-private partnerships, or some set of hybrid institutions.1 Under what arrangements is the public best served? What is the public value of resources, goods, and services?
Increasingly, questions about the allocation of goods and services receive market answers. Some of the more prominent market approaches include the sale of public assets to private parties; privatization and contracting out (Donahue 1991; Savas 2000); quasi-market policies based on vouchers or saleable credits (Hausker 1992); tax credits (Bucy 1985); creation of hybrid organizations, part public and part private (Emmert and Crow 1988); and contractor management of public agencies (Crow and Bozeman 1999). When market efficiency is not used as a rationale for delivery of goods and services, it is employed to exhort notyet-reinvented public agencies to be more business like, entrepreneurial, or market savvy (Osborne and Plastrick 1997). As a result of changes in traditional assumptions about providers of goods and services, the institutional...