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Government Failure
· Government failure occurs when a policy
intervention leads to a deepening of the market
failure or even worse a new failure may arise
· (1) Policies may have damaging long term
consequences
· (2) Policies may be wholly ineffective
· (3) Policies may create more losers than winners…read more

Slide 3

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Root causes of government failure
· Political self interest
· Policy myopia
· Regulatory capture
· Disincentives arising from policies
· Imperfect information within government
· The "law of unintended consequences"…read more

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Political self interest
· The pursuit of self-interest amongst politicians and
civil servants can often lead to a misallocation of
resources
· Government may be unduly influenced by
lobbying from special interest groups
· Farm support?
· Transport policy?
· Labour market policies?…read more

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Policy myopia
· Politicians have a tendency to look for short term
solutions or "quick fixes" to difficult economic
problems rather than making considered analysis
of long term considerations
· Examples?
­ Pensions policy
­ Source of energy generation
­ Solving the housing shortage
­ Reducing transport congestion…read more

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"Regulatory capture"
· This is when the industries under the control of a
government agency appear to operate in favour of
the vested interest of producers rather can
consumers…read more

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