The Theory of Government Failure

Abstract

This article outlines a theory of government failure that parallels the more well-established theory of market failure. It builds on the work of the public choice school concerning the behaviour of governments under the assumption that all relevant agents pursue their selfinterest. It examines the theoretical consequences for efficiency and equity of three kinds of government activity: provision, subsidy and regulation. The conclusion is reached that all three may create inefficiency and inequity, but that the form and magnitude of the failure will differ with the type of activity; hence it is important that the three are distinguished. It is also emphasised that the extent of government failure in each case (and whether it is greater or smaller than the corresponding areas of market failure) is ultimately an empirical question, not a theoretical one.

Governments as owners: State-owned multinational companies

“…The selection of the best option among the mechanisms is rarely clear-cut and will depend on the complexity of the market failure as well as the ability of the state apparatus to monitor and implement the mechanism. Governments suffer from government failures (Le Grand, 1991), which can take the form of state capture, lack of technical capacity to run firms and crowding out, ultimately limiting their ability to effectively manage SOEs.…”

Beyond Good and Evil in Policy Implementation: Instrument Mixes, Implementation Styles, and Second Generation Theories of Policy Instrument Choice

“…This was especially true for economists, as most neo-classical accounts consider many governing instruments to be inherently inefficient since they are viewed as distorting production and consumption decisions in the marketplace. As a result, proponents of this view would restrict governments to the direct provision of pure public goods through government departments and agencies (Wolf 1988;Wolf 1987;and Le Grand 1991). Although the recommendations of political scientists were less sure, they too tended to caution against the use of "too much" government authority and expressed a definite preference for the use of "less coercive" instruments (Hood 1983;Doern and Phidd 1988).Both these kinds of early instrument analyses had two problems.…”

Measuring Efficiency and Effectiveness of Highway Management in Sustainability

“…Technical efficiency focuses on lower spending. It implies the maximum possible output at a given cost for a set of inputs in terms of output or, in cost terms, a certain level of output at the minimum possible cost [17,18]. Allocative efficiency is explained as "the right things are being done"; that is, the resources of a community should be allocated and used to maximize its welfare.…”