Government Failure and Government Intervention

Abstract

Although the development and extension of the theory of market failure represents an impressive intellectual achievement, it is clear from the discussion in Chapter 2 that this paradigm has too many flaws for it to accurately prescribe the appropriate degree of government intervention in a modern advanced market economy. In addition to manifestations of market failure, based on either efficiency or equity considerations, policymakers require more realistic models of both the intentions and abilities of governments to intervene effectively. The extensive and evolving literature on government failure has ‘... provided a valuable corrective to the naive belief about the state held by some welfare economists that, once we can somehow have a “benevolent” state, it will solve all problems’ (Chang, 1994, p. 23).