Emphasizing Distributional Impacts in Teaching Solutions to Market Failures

This paper argues for incorporating distributional impacts into research and classroom discussions that focus on potential solutions to market failures. Many economists were taught to focus on the efficiency associated with such solutions and to assume that other means would be used to achieve the appropriate distribution of wealth within an economy. The paper briefly enumerates both theoretical and practical reasons why emphasizing distributional impacts is important. The paper offers a number of methods that can be used to identify distributional impacts in applied research such as Kaldor–Hick Tableaus, Lorenz Curves, Gini Coefficients, and weighted benefit-cost analysis and provides sample assignments that can be used in a wide range of classes.