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Slide 1

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R E
L U
I
FA
N T
E
N M
ER P IA
H
AP
V E
LL
GO
E
BRI
A
YG
B…read more

Slide 2

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R N M E N T
E G O V E
H E N T H D O E S I T
"W H Y W A R K E T S
N E S I N M U A T I O N
N T ER V E T H E S I T
I S M A K E
E T I M E "
SOM WO R S E ?…read more

Slide 3

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WHAT IS GOVERNMENT FAILURE?
Government failure (or non-market failure) is the public sector analogy to market
failure and occurs when a government intervention causes a more inefficient
allocation of goods and resources than would occur without that intervention
Government failure may range from the intervention that is merely ineffective,
but where harm is restricted to the cost of resources used up and wasted by the
intervention
It can also be a worse case when intervention produces new and more serious
problems that did not exist before. The consequences of this can take many years
to reverse.…read more

Slide 4

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CAUSES OF GOVERNMENT FAILURE
The pursuit of self-interest
Self-interest amongst both politicians and civil servants rather than operating on behalf of
citizens which leads to a misallocation of resources
Electoral pressures
Leading to inappropriate government spending and tax decisions - e.g. boosting state welfare
spending in the run up to an election
A tendency to look for short term solutions
Rather than making considered analysis of long term considerations (examples might include
important decisions about transport policy or extra funding for the National Health Service)
Regulatory capture
Industries under the control of a regulatory body begin to move policy options so as their
outcome is in their favour…read more

Slide 5

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CAUSES OF GOVERNMENT FAILURE
Disincentive effects
Loss of business competitiveness caused by the introduction of the National Minimum Wage
or the Working Families Tax Credit
The Environmental impact
Government price support for farmers
Imperfect information
Our electoral system is not an ideal way to discover what citizens want to do…read more

Slide 6

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EXAMPLES OF GOVERNMENT FAILURE
The Five-Year Plans for the National Economy of the Soviet Union (USSR) were a
series of nation-wide centralized economic plans
The essence of a command economy was that the state-operated planning
mechanism would decide what to produce and how to produce it and for whom
to produce
The collapse of the Soviet Union in the late 1980s and early 1990s marked, for
many people, the final failure of command or planned economies as a means of
allocating resources among competing uses
Government failure occurred when the central planners supplied products that
were simply not wanted by consumers
This showed a loss of allocative efficiency, since there was no price mechanism
to signal changes in consumer preferences and demand…read more

Slide 7

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