GOVERNMENT FAILURE
Market failure: overcome by government intervention to improve the allocation of resources
Government failure: a situation where intervention by the state reduces economic welfare rather than improve it. Examples of government failure include:
Administrative costs: the cost of implementing new
policies might outweigh the benefits gained from the policy
Incomplete information: government might not have access to the the right
amount of information to make the correct decision
Conflicts of objectives: Policy implementations have opportunity costs attached
to them. Undertaking one policy might mean the higher welfare gain from the
alternative policy is lost
Public choice theory: assumes politicians do not work for social benefit,
but for their own interests or other interested parties. Putting themselves
first reduces the chances of social welfare being increased.
The outcome is that government intervention has made resource
allocation worse. According to free market economists, economic welfare will be
improved by removing these government distortions and allowing the market to
work freely.