Market Failures and Community Participation in Developing Countries

Abstract

The paper investigates some of the causes of market failures in developing and underdeveloped countries when price mechanism fails to work efficiently or fails to function altogether. In the presence of asymmetric and incomplete information, state intervention is of little help. The article provides both empirical and experimental evidence of voluntary contributions by community members, in contradiction to predictions of theories of community participation.  Closely bonded communities with repeated interactions and inside information can enforce contracts where both the market and state may fail.