LS23 - Government Failure Flashcards
What is government failure?
When government intervention designed to correct a market failure results in a less efficient allocation of resources
What are the causes of government failure?
Unintended Consequences
Distortion of Price Signals
Excessive Admin Costs
Information Gaps
What are unintended consequences?
Government failure can arise through unintended consequences that result in a worse outcome than before government intervention was implemented
What is the distortion of price signals?
Maximum and minimum prices lead to excess supply and demand. Subsidies distort price signals by distorting the free market mechanism leading to inefficient allocation of resources
What are excessive admin costs?
The admin costs of government intervention may outweigh any benefits that result from it
What are information gaps?
A lack of sufficient information can lead to government intervention being set in an ineffective manner
