Market failures? The case for or against government regulations...

The reality is that markets adjust and there is a mechanism called tort law that creates an effective regulatory mechanism. However, there is an argument that there are negative externalities (social costs)or the costs including the externalities cost more than the positive impact of free markets. So, some argue that government have to step in to regulate the market. However, we have also observed seen a couple things when it comes to government intervention, first is that government does not necessarily regulate markets fairly, equitably nor effectively. Secondly, and one he does not directly deal with here is that once we allow government to intervene in markets, that they then use this capacity to regulate and intervene in those areas where they have no business being involved in. Thirdly, and its the secret that no one will ever discuss is given the diffuse information involved in markets it is extremely difficult to measure the inputs and devise a strategy in what needs to be regulated and how to regulate it. Furthermore, the strongest regulator of markets is a constraint placed by ethical practices on market participants. So the real world constraints on voluntary practices are ethics, common practices, custom and civil liability and these exist before government gets involved.