<P> In economics, market failure is a situation in which the allocation of goods and services by a free market is not efficient, often leading to a net social welfare loss . Market failures can be viewed as scenarios where individuals' pursuit of pure self - interest leads to results that are not efficient--that can be improved upon from the societal point of view . The first known use of the term by economists was in 1958, but the concept has been traced back to the Victorian philosopher Henry Sidgwick . Market failures are often associated with time - inconsistent preferences, information asymmetries, non-competitive markets, principal--agent problems, or externalities . </P> <P> Public goods are both non-rival and non-excludable (i.e., public goods are not only non-excludable) thus existence of a market failure is often the reason that self - regulatory organizations, governments or supra - national institutions intervene in a particular market . Economists, especially microeconomists, are often concerned with the causes of market failure and possible means of correction . Such analysis plays an important role in many types of public policy decisions and studies . However, government policy interventions, such as taxes, subsidies, bailouts, wage and price controls, and regulations, may also lead to an inefficient allocation of resources, sometimes called government failure . </P>

A situation in which a market left on its own fails to allocate resources efficiently is known as