Government Failure

Question 1

What is government failure?

Answer 1

When the gov intervene, they could worsen the market failure or a new failure might occur.

Question 2

How is unintended consequences a cause of gov failure?

Answer 2

• with gov policies, consumers act in unexpected ways. A policy could be undermined - making policies expensive to implement (black markets)
  —> gov may overlook things
  —> impacts on the poor, on firms, employment, etc.

Question 3

How is information gaps a cause of gov failure?

Answer 3

• govs dont know everything, have to value externalities so the right level of policy is required - could be too strict/loose, or make it worse

Question 4

How are administration costs a cause of gov failure?

Answer 4

Admin and enforcement costs on things like regulations, subsidies, price controls and state provisos. These all have huge costs in enforcing thus and therefore there is a big risk of gov failure

Question 5

How is conflicting objectives a cause of gov failure?

Answer 5

Governments have multiple things they want to achieve
- may do things that are not in best interest in society (e.g. want to win votes, so reduce beer tax to be popular, etc)