The most common cause of market failure is a lack of information. For example not knowing the full social costs of consuming tobacco or alcohol. Another very serious market failure is asymmetric information, when one party knows more than the other.
If a seller knows more about a good than the buyer then a price can be struck that exceeds the fair value of the good. Good examples are second hand cars and shares in companies.
In Europe there were huge problems with financial advisers selling financial services that were not appropriate for their customers. The financial advisers sold products which maximised their commission, which was not disclosed to their clients, and were often not what the client needed. This was therefore heavily regulated in the early 1990's with full and written disclosure required.
Australia has caught up with legislation and this has recently been enacted or is coming in to force in the next year.
It is remarkable that the idiot Abbot wishes to stop this legislation as he considers it superfluous. He states that "..because it was already an “ethical given” that professional advisers
would take into account the best interests of their clients." So he completely ignores all of the evidence of mis-selling from around the world and Australia.
It is perhaps too easy to poke fun at a simple minded man like Abbot, and maybe unfair to say that this is a case of a right wing government helping out its paymasters. However it is a shocking example of a government failing to protect its people from a known market failure.
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