Government failure

Question 1

When might gov failures occur?

Answer 1

When an intervention leads to a DEEPER MARKET FAILURE or even worse A NEW MARKET FAILURE MIGHT ARISE.

Question 2

What coauses gov failure?

Answer 2

1. Policies may have damaging LONG TERM CONSEQUENCES for the economy or the society.
2. Policies may be INEFFECTIVE IN MEETING AIMS
3. Policies may create more LOSERS THAN WINNERS.

Question 3

Examples of gov failure.

Answer 3

Question 4

What is the law of unintended consequences?

Answer 4

Well-intentioned legislation often acts against the interests of those it is intended to serve.

i.e. Bank bail outs - creates the problem of moral hazard

Bio-fuel-subsidy - causes food price inflationand hits the poorest in society

Windfall tax on north sea oil and gas led to huge fall in investment and exploration - causing UK imports to increase

Import tariffs on steel - hits domestic car and construction firms

Targets for treating patients - leads to reduction in quality of care eg Staffordshire general scandal

Question 5

Evaluations on gov intervention

Answer 5

Question 6

Behavioural economics in action

Answer 6