The lessons of public choice theory

Source

• One of the most common refrains from people who advocate for an expanded role of government in society is the notion of market failure.
  • There are certain areas where market forces do not opperate effectively and therefore we must have government corrective action.
• Public choice theory states that while markets are indeed imperfect, we can't just assume that government intervention will fix this.
• If we compare imperfect markets to imperfect governments, often markets will be the better option.
• Market failures occur in two situations
  • Externalities in collective goods
  • The area of asymmetric information
• The argument of market failure is wrong because it's based on a bifurcated view of human action
  • We know that people in markets are driven by self-interest, but we must also accept that people in government are driven by the same thing.

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