A Study Of Micro-Economic Regulation

The boundary of governmental action in the micro-economy depends on how to understand the market. By assuming away some most important factors, the general equilibrium theory represents the economy as a mechanical system. According to the GE theory, given fixed elements and the initial conditions, the results are uniquely and precisely predictable. Within the GE theory, the results are repeatable, and the processes are reversible. Consequently, there is the attractive possibility of control and direction by a human being who may be supposed to stand outside the system, and the system will always deliver the desired results under the control of government. Obviously, the idea of the economy as a machine is quite inadequate for a serious understanding of how a contemporary market economy really works, and it certainly provides an inappropriate basis for formulating economic policy. The general equilibrium model seems to be more appropriate for explaining a primitive economy or a centrally planned economy. Far from proving the dynamic efficiency under the realistic operation of the market system, the GE theory provides the theoretical basis of government micro-economic regulation and widespread intervention. From the perspectives of orthodox theory, only if strictly satisfies the GE conditions, can the market work well. Based on the GE theory, the theory of market failure interprets all those cases that deviate from the assumptions of equilibrium are exceptions, and it is concluded that the market must get something wrong. Accordingly, it is taken for granted that the government should take the responsibilities for correcting the market failure. Comprehending all those market phenomena abound in the actual operation of market, this only suggests to me that there must be something wrong with our way of thinking.The developments of the equilibrium theory since Marshall still leave the frame of orthodox theory untouched. Far from the reality, these developments have any explanatory power at all. Due to adhering to the comparative static equilibrium method with no genuine time, the mainstream economics cannot explain the realistic economic phenomena and behavior. If we intend to make clear the market phenomena in the real world, time, knowledge, human action and other important factors must be introduced into our analytical framework. Once these factors are taken into consideration, the market can only be interpreted as a dynamic competitive process. The market process distinguished it self with both the entrepreneurial discovery stimulated by the profit opportunity and the complexity, open-endedness. Established on probing into the multi-dimensional characters, we have to survey all those typical market failure phenomena discussed by the market failure paradigm, including monopoly, externality, public goods and information asymmetry. Serving as thenecessary expressional forms of the complicated, adaptive and competitive process, market failure phenomena always coexist with the market process. From a market-process perspective, those market failure phenomena understood by the traditional theory are exactly the embodiments of the well functioning of the market process, so they have more important implications than the phenomena named after market success or market equilibrium. As a matter of fact, in many occasions, the economic participants can always handle with various problems they faced effectively by taking trial and error, learning and adapting with others, while the measures of micro-economic regulation taken by government usually have no reasonable-grounds.Non-government barrier cannot threaten the rival and competitive market process. The natural character of natural monopoly indicates that this kind of monopoly is just an endogenous phenomenon of the market process, and itself may indicate that the attainment of market efficiency. Monopoly just means that one successfully wins the market temporarily, and the monopoly profit serves as the stimuli to attract more participants to vie competitively in...