Title: Using Markets to Help Solve Public Problems

Governments around the world have begun using markets as means to pol-icy ends. Pollution control has been assigned to a market in emissions al-lowances. The right to use the electromagnetic spectrum for telecommuni-cations has been auctioned off. In electricity supply, markets have replaced allocation by state agencies or regulated monopolies. In fishery manage-ment, tradable quotas have started to be used instead of direct regulation.1 Using markets to allocate public resources represents a middle ground between privatization and government control. It is not privatization be-cause the government retains substantial control rights. It is not govern-ment control of the traditional kind because part of the decision-making over how the resources are employed takes place in markets rather than in the bureaucracy. Controversy has dogged the adoption of markets by governments. Emis-sions trading is immoral, say some environmentalists, for it legitimates polluting. Critics of the spectrum auctions, like the technology guru Nicho-las Negroponte (quoted in Financial Times, 8 June 2000, p. 5), say they amount to “an economically unsustainable tax ” on the telecommunica-tions industry, bringing high prices for consumers and stifling innovation. The high electricity prices in California following deregulation prompted