1.4.2 Government Failure

Government Failure

When government intervention in a market to correct market failure leads to a more inefficient allocation of resources, resulting in welfare loss and poor value for money with potential long-term consequences.

Distortion of Price Signals

Alteration of the signaling function of the price mechanism due to interventions like minimum prices, leading to inefficient resource allocation, such as excess perishable products or unintended supply changes in demerit markets.

Unintended Consequences

Producers and consumers seeking self-interest may exploit legal or illegal loopholes to bypass government interventions, leading to unintended outcomes like illegal markets or production/consumption.

Excessive Administrative Costs

The high costs of regulation or administration can sometimes exceed the social welfare savings, adding financial burdens without proportional benefits.

Information Gaps

Government decision-makers facing information gaps and cognitive biases similar to consumers, lacking perfect information and being influenced by political pressures.

Environment Agency - Regulatory Failure

The Environment Agency's responsibility for regulating major industries and environmental aspects can face failures, as seen with instances of raw sewage pumped into England's rivers.

UK Energy Market - Regulatory Failure

Privatization of the UK energy market and regulatory actions like setting maximum energy prices can lead to issues such as high profits for companies and increased costs for consumers, causing some to struggle with payments.

Smoking Ban - Unintended Consequence

Implementation of indoor smoking bans can result in unintended consequences like congestion, increased emissions from outdoor heaters, and more cigarette littering.

Illegal Markets

Government interventions like minimum alcohol prices can lead to unintended outcomes such as increased cross-border activities or illegal drug trades, impacting the market dynamics.

Badly Executed Policies - Information Gaps

Projects like the Defence Information Infrastructure or the NHS National IT Program faced failures due to information gaps, cost overruns, and not meeting operational targets, showcasing the impact of poor planning and execution.