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Government failure: does government failure occur?
Published on October 31, 2019 13 min
Other Talks in the Series: Introduction to Microeconomics
What are the different types of costs and revenues?
- Dr. Sangaralingam Ramesh
- University College London, UK
Hi, I'm Dr. Sangaralingam Ramesh. Welcome to Talk Number 14 in these Henry Stewart Talk series: "Introduction to Microeconomics". In this talk, we'll be looking at government failure and seeking to answer the question, does government failure occur?
So the causes of government failure may be such things as the government not having enough information. So we assume that the free market economy, the price mechanism, carried all the information required by buyers and sellers to make buying and selling decisions. However, the government may not be able to gather enough information or have enough resources to do so in order to make decisions which lead to an efficient allocation of resources. So if we take the case of a government deciding on allocating public funds to either private schools, grammar schools, or state comprehensive schools, it may not have enough information to decide which of these types of schools actually is better off for society. Governments may also have conflicting objectives in which case arises the opportunity cost of decisions. Should the government spend more money on subsidizing private education or should it spend more money on state education? There are also large administrative costs with government gathering information about which schemes may be more better for society than others. So for example, if government decides on subsidizing an apprentice scheme using taxpayer's money, for example if it spends taxpayer's money on allowing for 50,000 apprentices on an apprentice scheme but only 10,000 of those apprentices actually gained full-time employment at the end of the apprentice scheme, only a few will benefit. So the government does incur a large administrative cost from trying to gather information and also on implementing the scheme, but only a few have benefited. So in this case, an opportunity cost also arises. So we say that because the government has not enough information because the government objectives may conflict, should it spend more money on the education system? Should it spend more money on giving young people work experience on apprentice schemes? May have conflicting goals and therefore opportunity cost arises. So it may be the case that government action may actually lead to a misallocation of resources resulting in a loss of economic welfare.