government failure

Question 1

When does government failure occur?

Answer 1

• when an intervention leads to a deeper market failure or a new market failure may arise

Question 2

What are the three things that can happen that can lead to government failure?

Answer 2

• policies may have damaging long term consequences for the economy or society
• policies may be ineffective in meeting their stated aims
• policies may create more losers than winners

Question 3

When can government failure happen?

Answer 3

if a policy decision fails to create enough of an incentive to change peoples actual behaviour

Question 4

What are the main types or reasons for government failure?

Answer 4

• information failure
• regulatory capture
• unintended consequences
• admin and enforcement costs are high

Question 5

how does political self interest cause cause market failure?

Answer 5

• government influenced by political lobbying

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Question 6

What are unintended consequences ?

Answer 6

• actions of consumers, producers and government that have unanticipated effects

Question 7

give examples of unintented consequences?

Answer 7

• bank bail outs (moral hazard)
• bio fuel subsidy ( may divert production away from food, cause food price inflation)
• import tariffs on steel ( hits domestic car and construction firms

Question 8

What is regulatory failure?

Answer 8

those situations where regulation that intended to overcome market failures or to protect the public at large fail to achieve those same goals

Question 9

Give examples of regulation failure?

Answer 9

• capping prices may prevent new firms entering market
• regulation becomes burecratic and costly
• frequent rule changes can stifle business investment

Question 10

What is regulatory capture?

Answer 10

where the organisations set up to regulate an industry become controlled by the very business they are meant to be regulating

Question 11

When would the government failure of poor value of money for government failure occur>

Answer 11

when there is low productivity and or high level of waste that may make government spending less effective

Question 12

Give an example of the market failure a poor value for money?

Answer 12

• private finance initiative (policy designed to get the private sector to fund and then run public projects

Question 13

What are some evaluation points for government intervention?

Answer 13

• value judgement (some intervention may be for own interest)
• changing prices to change incentives or behaviour ( PED has big effect)
• social science ( effect of intervention cannot be forecast)
• combination of policies ( one single solution is unlikely to produce a solution)
• power of markets ( leaving the market to adjust)
• law of unintented consequences