Types of Government Failure

A handy way of remembering the different types of government failure.

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  • GOVERNMENT FAILURE (PRESIDE-nt)
    • P
      • Political bias
        • Favouring voters and constituencies in intervention
    • R
      • Regulatory capture
        • The illegitimate (usually financial) influence of industry regulators by firms. Also occurs in political lobbying.
    • E
      • Evasion of intervention
        • Tax avoidance and breach of pollution controls
    • S
      • Short-term planning
        • UK transport network. Exacerbated by the short lives of governments.
    • I
      • Imperfect Information
        • Gvt. does not have perfect information regarding consumer's and taxpayer's preferences or economic activities.
          • Taxes on demerit good; who do they hit hardest?
    • D
      • Disincentives
        • Where gvt. intervention produces a disincentive to productive economic activity. An example might be welfare payments above the equilibrium Wage Rate.
    • E
      • Gvt. expenditure
        • The gvt. costs of creating and administering an intervention might be vastly greater than the social benefits.
    • nt
      • Unintended consequences
        • People can act in ignorance/error and gvt. failure can result

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