2.11 Government failure Flashcards
(17 cards)
when does government failure happen with intervention
government failure occurs when an intervention leads to a deeper market failure or even worse a new failure may arise
in other words, intervention creates further inefficiencies, a misallocation of resources and a less of economic and social welfare
why might policies be damaging
- policies may have damaging long-term consequences
- policies may be ineffective in meeting their aims
- policies may create increase inequalities of income and wealth
government failure can happen if a policy decision fais to create enough of an incentive to change peoples behaviour
what are the root causes of government failure
- political self interest
- poor value for money
- policy short-termism
- regulatory failures
- conflicting objectives
- bureaucracy and red tape
- unintended consequences
define and give examples of political self interest
government is influenced by influential political lobbying
examples= farm support policies, the drinks industry, transport lobby
define and give examples of poor value for money
low productivity/ high waste makes spending less effective
examples= investment on IT projects in the NHS
these projects never came into use, waste of money and resources
define and give examples of policy short - termism
governments often looking for a “quick fix” solution
examples= road widening to reduce congestion, speed cameras for congestion and speeding
define and give examples of regulatory failures
when govt agency operates in favour of producers
e.g. self regulation on alcohol prices, powerful energy lobby
define and give example of conflicting objectives
one policy objective might conflict with another
e.g minimum carbon prices could damage UK competitiveness
define and give examples of bureaucracy and red tape
cost of enforcement may hurt enterprise and incentives
e.g. cost of meeting heath and safety and environmental laws
define unintended consequences and give example
policies have unanticipated or unintended side effects
e.g vapes introduced to help smokers quit. vapes now used by people who don’t smoke
what does government failure lead to
leads to a worsen allocation of resources, further leading to a net welfare loss
What causes government failure?
Unintended consequences
Information gaps
Administrative costs
Regulatory capture
Distortion of price signals
Give an example of government failure due to unintended consequences.
Rent controls may lead to housing shortages or reduced investment by landlords, making the problem worse.
How does poor information lead to government failure?
If policymakers lack accurate data, they may implement ineffective or harmful interventions, e.g. setting taxes or subsidies at the wrong level.
What is regulatory capture?
When a regulator is influenced or dominated by the industry it’s supposed to monitor, leading to biased decisions that benefit producers over consumers.
How can administrative costs cause government failure?
The cost of enforcing policies (like means-tested benefits or pollution monitoring) may outweigh the benefits of the intervention.
Give an example of price distortion as a cause of government failure.
Minimum wages set too high may cause unemployment or lead to black market employment, distorting labour market signals.
