Free Market Resource Allocation
Will the Free Market ALWAYS Optimally Allocate Resources?
An entirely free market has no economic intervention. This would include government regulation. The enforcement of contractual obligations, protection of private property rights, and the ownership of property are important elements of a free market. Private property ownership and rights need protected otherwise un-owned property becomes commonly (or collectively) consumed with no private interest to protect the resources of that property. It is in these circumstances that the tragedy of the commons exists. The resources being consumed will become depleted because individual gains will incentivize consumption without regard to long term overall effects. Personal benefits outweigh the long term success of the many when property rights aren’t clearly defined or protected. The solution to the tragedy of the commons would be to award property rights and protections into the market. An example would be the buffalo and cattle populations over the course of American Development. Historically property rights did not extend to live buffalo but rather stated that the point of ownership began when the animal was killed by the hunter. Property rights were awarded to live cattle and were thus protected, bred, and multiplied by ranchers. Over time even though more cattle was consumed than buffalo, cattle numbers continued to climb whereas the buffalo populations were hunted nearly to extinction. No system is completely flawless and even in a typical free market economy (with limited intervention) externalities will exist; however, a free market economy will naturally outperform controlled markets.
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