(no subject)
Government Failure
1. High Costs
- High admin costs incurred from carrying out policies, including Implementation costs and Monitoring costs
- Acts as a monopoly, hence tends to be inefficient and generates high waste, large burden to society
2. Information Gaps
- Gov may not be in the right position to establish consumer's prefs
- Unable to aggregate the total demand in the economy for particular goods and services
3. Time Lag
- Gov faces Recognition Lag, identifying and determining the problem, Decision Lag, deciding which policy to use to resolve an issue, and Implementation Lag, which is implementing the policy
- Hence, policies used may be overdue or even worsen the problem
4. Self - Interest
- Some politicians and civil servants may choose to act in their own self- interest to garner fame and higher salary, instead of working in the interests and behalf of the citizens.
- They dont seek efficiency and this results in misallocation of resources in the country. (Eg. Building of hospital/Expansion of HQ?)
5. Electoral Pressures
- As elections draw near, gov may choose to curry favour through additional expenditure or reduction of tax rates, w/o fully carrying out a thorough CBA on these projects
6. Short Term-ism
- Govs are accountable to the public.
- Sometimes this means that they only consider short-term reliefs to problems, and fail to resolve the long-term issues that arise as a result.
7. Regulatory Capture
- Industries under a regulatory body may alter policy options to suit them better such that the outcome is in their favour
- This will prevent the market from operating freely
- Eg : Agriculture, Telecomm, Environmental Protection
8. Disincentive Effect
- Certain policies may increase business cost and cause a disincentive effect instead of its original aims
- Eg : Unequal Y, gov may introduce more progressive taxes, but this could drive more firms out of business, resulting in high unemployment.
9. Monopolist
- The gov faces the problem of cost minimization as well, just like other firms
- However it operates in an environment where it is a monopoly without any stockholders.
1. High Costs
- High admin costs incurred from carrying out policies, including Implementation costs and Monitoring costs
- Acts as a monopoly, hence tends to be inefficient and generates high waste, large burden to society
2. Information Gaps
- Gov may not be in the right position to establish consumer's prefs
- Unable to aggregate the total demand in the economy for particular goods and services
3. Time Lag
- Gov faces Recognition Lag, identifying and determining the problem, Decision Lag, deciding which policy to use to resolve an issue, and Implementation Lag, which is implementing the policy
- Hence, policies used may be overdue or even worsen the problem
4. Self - Interest
- Some politicians and civil servants may choose to act in their own self- interest to garner fame and higher salary, instead of working in the interests and behalf of the citizens.
- They dont seek efficiency and this results in misallocation of resources in the country. (Eg. Building of hospital/Expansion of HQ?)
5. Electoral Pressures
- As elections draw near, gov may choose to curry favour through additional expenditure or reduction of tax rates, w/o fully carrying out a thorough CBA on these projects
6. Short Term-ism
- Govs are accountable to the public.
- Sometimes this means that they only consider short-term reliefs to problems, and fail to resolve the long-term issues that arise as a result.
7. Regulatory Capture
- Industries under a regulatory body may alter policy options to suit them better such that the outcome is in their favour
- This will prevent the market from operating freely
- Eg : Agriculture, Telecomm, Environmental Protection
8. Disincentive Effect
- Certain policies may increase business cost and cause a disincentive effect instead of its original aims
- Eg : Unequal Y, gov may introduce more progressive taxes, but this could drive more firms out of business, resulting in high unemployment.
9. Monopolist
- The gov faces the problem of cost minimization as well, just like other firms
- However it operates in an environment where it is a monopoly without any stockholders.