Economics Dictionary of ArgumentsHome
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| Government failure: Government failure in economics occurs when government intervention in the market leads to an inefficient allocation of resources, worsening the situation rather than improving it. This can happen due to poor policy design, bureaucratic inefficiencies, rent-seeking, or unintended consequences that distort economic outcomes and reduce societal welfare. See also Government policy, Bureaucracy, Welfare, cf. Market failure._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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James M. Buchanan on Government Failure - Dictionary of Arguments
Boudreaux I 49 Government Failure/Buchanan/Boudreaux/Holcombe: Government failure arises from two problems. 1) First, in many cases the information necessary to allocate resources efficiently is not available to policy-makers. 2) Second, even if the information necessary to implement optimal policies is available, policy-makers often do not have strong enough incentives to implement such policies. Buchanan’s discussion of externalities provides an example of a situation in which sufficient information is not available to implement the theoretically optimal policy. Taxation: In theory, there is an optimal corrective tax that could be placed on an externality to produce an efficient outcome. In practice, though, the information necessary to discover this optimal tax is unavailable. Boudreaux I 50 Even if policy-makers want to implement an optimal tax, they lack the information necessary to do so. >Optimal tax, >Taxation. Buchanan, however, placed special emphasis on the fact that even if all the necessary information were available, policy-makers often have poor incentives to implement optimal policies. >Incentives. Elected officials and government employees act to further their own interests, just like everyone else. Elected officials often undertake actions designed to boost their popularity leading up to an election, and government bureaucrats often make decisions motivated by what would give them pay increases or would increase their agencies’ budgets. >Democracy/Buchanan, >Bureaucracy, >Political elections. Market failure: Traditional public-expenditure theory focuses on market failures - that is, on why the market does not allocate resources as efficiently as is theoretically possible - and develops theoretical models to explain how, in theory, resources could be allocated more efficiently. BuchananVsTradition: Buchanan takes a different approach to public-expenditure theory. 1) First, he divides government’s functions into two conceptual categories: a) the protective state and b) the productive state. The first justification Buchanan offers for public expenditures is to protect its citizens. Beyond that, the productive state can provide collectively consumed goods in situations in which the market might perform inadequately. >Market failure, >Government policies, >Government spending, >Public finance. Two big areas in traditional public finance that cite market failure as a reason for government action are externalities and public goods, and in both of these areas, Buchanan offers a distinctive approach in which he analyzes how individuals can cooperate with each other to allocate resources more efficiently. >Cooperation, >Public goods, >Collective goods. His theory of clubs analyzes public goods by looking at the groups that consume them rather than by analyzing the goods themselves. >Clubs/Buchanan. This approach depicts public goods more realistically - as existing on a continuum between public and private goods rather than being at one extreme or the other. It also shows how individuals can cooperate to produce public goods. Boudreaux I 51 Buchanan also analyzes externalities by examining the ways in which individuals can cooperate to allocate resources more efficiently rather than relying on government-imposed solutions. >Externalities/Buchanan. In drawing a parallel between market failure and government failure, Buchanan’s insight is that democratic political systems create their own inevitable externalities. Some people can use the system to impose costs on others. This reality is a sufficient reason to raise questions about any government action ostensibly meant to “correct” a market failure. Such action unavoidably carries the risk of government failure. Buchanan concluded that when evaluating public policy, any imperfections in market activity must be compared against the inevitable imperfections inherent in government action. Such a comparison does not inevitably lead to the conclusion that government action is never warranted, but it does avoid the bias in favour of government action created by the standard assumption that government officials are fully informed and always act apolitically and exclusively in the public interest._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
EconBuchan I James M. Buchanan Politics as Public Choice Carmel, IN 2000 Boudreaux I Donald J. Boudreaux Randall G. Holcombe The Essential James Buchanan Vancouver: The Fraser Institute 2021 Boudreaux II Donald J. Boudreaux The Essential Hayek Vancouver: Fraser Institute 2014 |
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> Counter arguments against Buchanan
> Counter arguments in relation to Government Failure
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