govt failure

• Government failure occurs when the costs of government intervention outweigh the benefits
• Government failure can worsen the allocation of scarce resources and harm social welfare.
• The core idea of government failure is that even with market failures, government intervention might make things worse
• Four main reasons why government failure can occur

  1️⃣ Lack of full information

  2️⃣ High policy costs

  3️⃣ Unintended consequences

  4️⃣ Regulatory capture
• Why is the assumption that governments have full information often false?

  Governments lack expertise
• When externalities cannot be valued accurately, policies may be too strict or too lax
• Enforcing regulations can be costly and may not always outweigh the benefits.
• Subsidies, state provision, and price controls all involve significant costs
• What is an unintended consequence of a minimum price policy?

  Black markets
• Overly strict regulation can cause firms to relocate or shut down
• What is an unintended consequence of subsidies for firms?

  Dependency on subsidies
• Excess demand is a common unintended consequence of state provision.
• Regulatory capture occurs when regulatory authorities are influenced by firms to reduce the extent of regulation
• Why can regulatory capture lead to government failure?

  Interests of society are overlooked