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The Principle and Market Failure in Systems Competition

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  • Hans-Werner Sinn

Abstract

Contrary to a frequent contention, systems competition cannot work when governments respect the Subsidiarity Principle. The principle implies that governments step in where markets fail. Reintroducing markets through the back door of systems competition will again result in market failure. Three models are presented which illustrate this wisdom. The first is concerned with congestion-prone public goods and shows that fiscal competition may be ruinous for the governments. The second considers the insurance function of redistributive taxation and shows that systems competition may suffer from adverse selection. The third studies the role of quality regulation and shows that systems competition may be a competition of laxity resulting in inefficiently low quality standards.

Suggested Citation

  • Hans-Werner Sinn, 1996. "The Principle and Market Failure in Systems Competition," NBER Working Papers 5411, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:5411
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    Cited by:

    1. Scharpf, Fritz W., 1997. "Balancing positive and negative integration: The regulatory options for Europe," MPIfG Working Paper 97/8, Max Planck Institute for the Study of Societies.
    2. Fehn, Rainer, 2001. "Institutioneller Wettbewerb und soziale Sicherungssysteme in Europa," Discussion Paper Series 45, Julius Maximilian University of Würzburg, Chair of Economic Order and Social Policy.
    3. Knut Blind, 2002. "Driving forces for standardization at standardization development organizations," Applied Economics, Taylor & Francis Journals, vol. 34(16), pages 1985-1998.
    4. Barbara Dluhosch, 1997. "Convergence of Income Distributions: Another Measurement Problem," Constitutional Political Economy, Springer, vol. 8(4), pages 337-352, December.
    5. Gérard, Marcel, 1999. "L’imposition des revenus de l’investissement en Europe, une hétérogénéité coûteuse," L'Actualité Economique, Société Canadienne de Science Economique, vol. 75(1), pages 401-426, mars-juin.
    6. Bruno Coquet & Jacques Le Cacheux, 1996. "Les privatisations dans la perspective de l'intégration européenne," Revue Économique, Programme National Persée, vol. 47(6), pages 1333-1350.
    7. Gerken Lüder, 1999. "Ursprungslandprinzip, Wettbewerb der Staaten und Freiheit," ORDO. Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft, De Gruyter, vol. 50(1), pages 405-430, January.
    8. Genschel, Philipp, 1998. "Markt und Staat in Europa," MPIfG Working Paper 98/1, Max Planck Institute for the Study of Societies.
    9. Michael Keen & Kai A. Konrad, 2012. "International Tax Competition and Coordination," Working Papers international_tax_competi, Max Planck Institute for Tax Law and Public Finance.

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    More about this item

    JEL classification:

    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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