Government Failure

• Government failure occurs when government intervention in a market fails to achieve the desired outcome or even worsens the situation.
• Reasons for government failure include inadequate information, conflicting objectives, administrative costs, and unintended consequences.
• Government failure can result in inefficient allocation of resources and does not improve economic welfare.

Government failure occurs when government intervention in a market to address market failures either fails to achieve the desired outcome or worsens the situation. This video summarizes the key reasons for government failure in market intervention. Inadequate information is a major challenge as it is difficult to assess the extent of market failures, leading to unintended negative effects. Conflicting objectives also contribute to government failure, as governments strive to achieve multiple goals that may contradict each other. Administrative costs can outweigh the benefits of intervention, resulting in government failure. Additionally, unintended consequences can arise when policies designed to address one market failure inadvertently create negative effects in other areas. It is important to understand that market failure prompts government intervention, but government failure can hinder economic welfare or fail to improve it.