The traditional theory of market failure provides a powerful analytical framework for evaluating the functioning of markets. However, the theory is based on a highly simplified conception of human behaviour - the homo oeconomicus - which describes economic actors as fully rational and purely self-interested. In behavioural economics, these assumptions are scrutinised and augmented or replaced by more realistic ones. This study examines to which extent integrating behavioural economic findings into the traditional model of behaviour can strengthen the explanatory power of the theory of market failure. Based on an understanding of market failure as a cooperation failure, the analysis focuses primarily on the relevance of social preferences. The study examines if incorporating social preferences could lead to new market failures or a correction of existing ones. In addition, it is analysed whether social preferences can facilitate private bargaining solutions for overcoming market failure. As a starting point, a welfare-economic analysis of market failure is carried out, where the self-interested pursuit of individual goals by market actors leads to insurmountable cooperation problems. Thereafter, the traditional model of behaviour is selectively extended with the inclusion of social preferences. Based on this refinement, market failure is then reassessed under alternative and more realistic behavioural assumptions. The results of this study suggest that by disregarding social preferences, the traditional theory leaves out essential aspects of market failure. Factoring in social preferences can lead to new market failure, which can be attributed to the presence of welfare externalities. Furthermore, the traditional theory underestimates the extent of the welfare-economic consequences of market imperfections as it excludes utility interdependencies between market actors. Finally, it is shown that social preferences can facilitate overcoming market failure through bargaining solutions that otherwise fail in the case of only self-interested preferences. Social preferences can therefore be seen as a corrective mechanism that enables decentralised solutions to market failure.