Markets are central to the functioning of modern societies, but they may also generate undesirable outcomes. Market forces may contribute to inequality of income and wealth. Market prices that do not properly reflect the damage inflicted upon the environment by economic activities are an important reason behind climate change. And the failure of financial markets is seen as having caused the global financial crisis. This calls for the correction of market outcomes through public policy.
The traditional perspective emphasizes market power, externalities and information asymmetries as sources of market failures and tackles them by regulation, taxation or public goods provision. The Cluster extends the traditional approach by taking into account new objectives beyond economic efficiency, by analyzing new problems in the light of societal changes, and by considering new policy tools.