25- Government failure Flashcards

1
Q

What is government failure?

A

It occurs when an intervention leads to an even less efficient allocation of resources than with the market failure alone. So intervention causes further inefficiencies , a misallocation of resources and a loss of economic and social welfare.

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2
Q

Causes of government failure?

A
  • Political self interest/lobbying
  • Policy myopia - search for quick fixes
  • Regulatory capture
  • Information failures
  • Disincentive effects
  • High enforcement/compliance costs
  • Conflicting policy objectives
  • Damaging effects of red tape
  • Information gaps
  • Distortion of price signals
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3
Q

Effects of government failure?

A
  • Long term consequences for the economy or society
  • Policies may lead to a net social welfare loss
  • It may create more losers than winners
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4
Q

Example of political self interest

A

Farm support policies, the drinks industry, transport lobby

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5
Q

Example of poor value for money/admin costs

A

Investment on IT projects in the NHS

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6
Q

Example of political short termism

A

Road widening to reduce congestion

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7
Q

Example of regulatory capture

A

Self regulation on alcohol prices, powerful energy lobby

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8
Q

Example of conflicting objectives

A

Minimum carbon price could affect UK competitiveness

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9
Q

Example of bureaucracy and redtape

A

Costs of meeting health and safety, environment laws

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10
Q

Example of unintended consequences

A

Smoking ban, increased use of outdoor patio heaters

Bank bail outs - raises problems of moral hazard

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11
Q

Real life examples of government failure

A
  • Minimum wage leads to reduction in staff non-wage benefits
  • Smoking ban encouraged widespread use of outdoor patio heaters
  • Tariffs on steel causes damage to car makers
  • Price caps on texts leads to higher prices for mobile handsets
  • Targets for treating patients might lead to a lower quality of care
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12
Q

What is the law of unintended consequences

A

Action of consumers, producers and government always have effects that are unanticipated or unintended
Well intentioned legislation often acts against the interests of those it has to serve

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