Government failure

Government failure exists when

The government intervenes to correct a market failure but this results in a more inefficient allocation of resources reducing economic welfare or failure to improve allocation

Reasons for government failure- Conflicting policy objectives

One policy objective might conflict with another

Administrative costs

Possible that costs or researching/ implenting intervention may outweigh benefit of policy

Political self interest

Government policy can be influenced by influential political lobbying

Short termenism

Governments often look for a quick fix solution

Regulatory capture

Sometimes forms may influence the regulating body so that they favour the firm in any decisions they make

Inadequate information

Governments often act with very imperfect information

Unintended consequences

Actions of consumers, producers and government often have consequences that are unintended