Government failure is also known as non-market failure.
Government intervention causes a more inefficient allocation of goods and resources that would not occur without that intervention
Government failure occurs when its intervention in allocation of resources is not pareto optimal, the net effect or result is usually excess supply of public goods and services that is a government that is not bigger than its optimal size.
Instances of government failure
- Crowding out – Government intervention in the economy drives out private activity. For example, government borrowing crowds out private investment due to high interest rates.
- Rent-seeking – this involves obtaining economic benefit using government apparatus to gain advantage. For example, spending money on lobbying or limiting access to luxurious occupations through bottlenecks.
- Unintended expenses- this comes about when a mechanism that has been installed with intention of producing on result is used to produce a different result. For example, rent control by the government could lead to shortage of houses.
- Pork-barrel spending – this a government failure where legislators encourage public spending in their constituencies whether or not it is efficient or useful.
- Rational ignorance -this occurs due to time/money cost associated with gathering information. information being collected may be more expensive in terms of cost of obtaining it and time used to extract it compared to the benefit of having that information.
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