| Wondu
has done extensive work in the area of competition
and regulatory policy. Our approach is that markets
rarely work in what might be termed a 'strong
form efficient' way. 'Strong form' efficiency
means that all information - public and private
- is embodied in prices. That does not mean markets
are less efficient than other forms of allocating
resources. To the contrary, it is very difficult
to outperform a well-functioning market in terms
of allocating resources to their best use.
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Prices
are rarely stable and are usually overshooting
or undershooting the point of equilibrium between
long run supply and demand. And they usually adjust
much quicker than officials in even the best managed
bureaucracies. Currencies and stock markets, for
instance, are prone to overshooting and undershooting
their long term equilibrium position. But that
doesn't mean the markets are inefficient, simply
that they capture the state of volatile expectations
and policies at particular moments in time. Most
rational firms are actively seeking to find a
competitive advantage in the market and some way
of insulating themselves from competition so they
search for the 'windows of opportunity' in disequilibrium.
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Often
when there is market failure, t is difficult to
justify government interventions, since these
usually involve significant direct costs, indirect
compliance costs and errors of judgement. There
are, however, areas where government intervention
is legitimate. Research and development and education,
for example, are common areas of market failure,
though identifying an efficient form of intervention
remains a significant policy challenge. |
