LS23 - Government Failure

Question 1

What is government failure?

Answer 1

when government intervention designed to correct a market failure results in a less efficient allocation of resources

Question 2

What are the causes of government failure?

Answer 2

Unintended consequences (worse outcome)

Distortion of price signals (may increase consumption of demerit goods)

Excessive admin costs (costs of intervention may outweigh benefits)

Information gaps (lack of info = ineffective intervention)