Government Failure

Statement

Government failure occurs when government intervention results in a greater misallocation of resources — a larger deadweight welfare loss — than would have occurred in the free market without intervention.

Notes

Government failure is the mirror image of market failure: intervention intended to correct a market failure can itself leave society worse off than the unregulated outcome. It is the standard evaluative counterweight in any policy essay — the reason a corrective policy may fail to raise welfare even when the underlying market failure is real. The causes recognised by the syllabus — imperfect information, lack of compliance, bureaucratic inefficiency, policy conflicts, and political factors — are set out in the causes of government failure.