1.4.2: Government Failure

• Government failure: When government intervention worsens allocation of resources.
• Government failure causes a greater net welfare loss, and the costs of the intervention outweigh benefits
• Cause of government failure: Political self-interest
• Cause of government failure: Conflicting objectives
• Outcome of government failure: Greater level of inequality
• Outcome of government failure: Unintended consequences
• Unintended consequences: Outcomes that were not foreseen or intended by the government when they intervened
• Argument against government intervention in markets: The price mechanism is usually efficient and promotes innovation
• Argument against government intervention in markets: When resources are scarce, higher prices are good
• Argument against government intervention in markets: Profit incentivises firms and entrepreneurs
• Argument for government intervention in markets: Governments provide public goods which are needed
• Argument for government intervention in markets: Rules and regulations about competition
• Argument for government intervention in markets: Allocation of property rights and the legal system