On Obnoxious Markets

Certain markets evoke popular discomfort, distrust and even outrage. Trade in arms, drugs, toxic waste, child labor and body parts, for example, elicits these reactions to different degrees. This paper asks—what is it about some markets that brings about these responses? It is argued that three key parameters—extremity, agency and inequality—have a bearing on our intuitive reactions and serve to differentiate markets. The more extreme are the likely outcomes of a market, the further is the agent who acts in the market from agents who bear the consequences of those actions, and the greater is the degree of inequality in market relations, the more likely it is that the operation of the market will provoke discomfort. At the extreme, when outcomes are potentially extreme, agency is minimal and market relations are highly unequal, the market in question may deserve the label “obnoxious”. However, it is not obvious that the best or only answer to an obnoxious market is to attempt to ban it. The forces underlying the market may not disappear, and such attempted bans may in fact intensify the problems of extremity, agency and inequality. While judicious regulation remains an important tool, a complementary approach is to address the underlying issues directly—extremity through safety nets, agency through information, and inequality through redistribution. * This paper was originally prepared for a conference on Economics, Philosophy and Contemporary Social Issues, held at the University of California, Riverside, on May 25-26, 2001. I am grateful to the Conference organizers, Steve Cullenberg and Prasanta Pattanaik for encouraging me to work on this topic. I thank them and my fellow paper writers—Xu Cheng, Georgia Warnke, Paul Seabright, Richard Arneson, Keith Griffin, Stephen Marglin, Debra Satz and Vegard Iversen—for stimulating discussions at the conference. I am also grateful to my Cornell colleagues Kaushik Basu and Dick Miller for letting me use them as sounding boards for these ideas.