Government Failure
occurs where government intervention inthe economy causes inefficient
allocation of resources and a decline in economic welfare
occurs when government attempts to solve market failure but creates moreproblem
Causes of Policieshavinglongtermconsequencesandnotmeeting their aims
government failure
Lack of incentives
limited or no profit motive
workers managers lack incentive to improve service and cut costs
leading to inefficiency
Poor Information
politicians may have poorinformation about a service to provide
information maybe misleading
Politicians maximise their own welfare
decisions made
forshort term political gain
whether or not it leads to welfare gain
Example of government failure
Building specific road for buses only to travel
To reduce trafficjams
To reduce car accidents
However Took longerto build than expected
Cost a lot more money to build than expected
Tax on rubbish
Tax was set on firms producing rubbish to overcome market failure
However it lead to firms disposing rubbish into seas and roads
Tackling government failure
Give performance targets or profit incentives
Employing private sector consultants to make decisions on how to cut costs
Leave decisions to market
Note Government
failure is lessof a issue than market failure
occurs where government intervention inthe economy causes inefficient
allocation of resources and a decline in economic welfare
occurs when government attempts to solve market failure but creates moreproblem
Causes of Policieshavinglongtermconsequencesandnotmeeting their aims
government failure
Lack of incentives
limited or no profit motive
workers managers lack incentive to improve service and cut costs
leading to inefficiency
Poor Information
politicians may have poorinformation about a service to provide
information maybe misleading
Politicians maximise their own welfare
decisions made
forshort term political gain
whether or not it leads to welfare gain
Example of government failure
Building specific road for buses only to travel
To reduce trafficjams
To reduce car accidents
However Took longerto build than expected
Cost a lot more money to build than expected
Tax on rubbish
Tax was set on firms producing rubbish to overcome market failure
However it lead to firms disposing rubbish into seas and roads
Tackling government failure
Give performance targets or profit incentives
Employing private sector consultants to make decisions on how to cut costs
Leave decisions to market
Note Government
failure is lessof a issue than market failure
