When manufacturers fail to produce goods that society finds itself in need of, it is called a market failure. There are public goods—such as security, caring for the mentally ill, and green energy—that sometimes fail to provide adequate profits to incentivize providers to generate products that will satisfy the public need. In such situations, politicians can step in and direct state resources to address these shortcomings. The ends are accomplished through diverting tax proceeds toward remedying the matter.

The present case study explores the trade-offs involved with one such market, corn-derived ethanol. There are tensions between the logic of economics and politics in their respective approaches to determining just how much of the product is needed. Consumers are asking whether the subsidies paid for by taxpayers and allocated by politicians are producing net benefits or whether the drawbacks negate the stated goals of supporting the ethanol industry: independence from foreign oil, reducing harms to the environment, and generating economic activity.

This case was prepared for inclusion in SAGE Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.

2023 Sage Publications, Inc. All Rights Reserved

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