Government failure and feasible alternatives
| English | 中文 | Pinyin |
|---|---|---|
| government failure/ˈɡʌvənmənt ˈfeɪlɪə/ | 政府失灵 | zhèng fǔ shī líng |
| administrative cost/ədˈmɪnɪstrətɪv kɒst/ | 行政成本 | xíng zhèng chéng běn |
A decision you can investigate
- A policy can have a reasonable aim and still cost more than the benefit it creates. A scheme that fixes one distortion can also create another.
- Evaluate what it actually changes against a feasible alternative.
Build the explanation
- Government failure 政府失灵 occurs when intervention produces a net welfare loss. Causes include information gaps about benefits, costs or behaviour; weak incentives to control costs or respond to users; unintended consequences; excessive administration; and moral hazard when expected public protection encourages risk. A policy’s stated intention is not evidence of its net outcome.
- Separate resource costs from transfers. A subsidy payment redistributes purchasing power but financing, administration and distorted incentives may impose real costs. Distribution still matters: an aggregate gain need not benefit every group. Compare actual intervention with the relevant no-policy or alternative-policy baseline, keeping assumptions explicit.
Work through the evidence
- A fictional policy generates modeled gross social gains 1200, uses implementation resources 900 and adds administration 400. Net change=1200−900−400=−100: government failure in this stated comparison. If redesign reduces administration to 150 with other effects unchanged, net change=1200−900−150=150.
- The result depends on the unchanged-effects assumption. Cutting monitoring might instead reduce genuine gains. Suppose an information error overstates gross gains by 300: the redesigned estimate falls to 900−900−150=−150. Sensitivity analysis tests whether the judgement survives plausible changes; it does not replace evidence.
What is the first policy’s net welfare change in the case?
1200−900−400=−100.
Test the limits
- A housing control may create maintenance or supply problems; an agricultural guarantee may encourage unwanted surplus; energy support may weaken conservation; a bank rescue expectation may encourage risk. These are mechanisms to investigate, not claims that all such policies fail. In health, education and environmental programmes, poor measurement and slow feedback can misdirect resources even where intervention is valuable.
- A lack of market profit signals need not imply that every public provider is inefficient; explicit targets, user feedback and accountability can improve incentives. Include timing, monitoring, financing, capacity, elasticity and stakeholder impacts. End an evaluation with a conditional judgement about the most important constraint and a feasible comparison, rather than a memorized list.
What is redesigned net change if gains were overstated by 300?
Corrected gross gains 900 minus 900 and 150 equals−150.
A policy must create a net welfare gain whenever its stated purpose is correcting market failure.
Information, implementation, unintended effects and costs can outweigh its gains.
Apply and explain your answer
- Why does reducing administration not guarantee that the redesigned policy remains beneficial?
- It may also weaken enforcement or delivery and reduce benefits; the 150 gain assumes other effects remain unchanged.
Which is a moral-hazard risk of expected rescue?
Expected protection can weaken the chooser’s incentives to avoid losses.
Use the terms precisely
- government failure: Intervention causes a net welfare loss relative to the stated comparison.
- administrative cost 行政成本: Resources used to design, deliver, monitor and enforce a policy.
Match the terms to their meanings.
Use each term for its stated economic relationship.
A fictional policy generates modeled gross social gains 1200, uses implementation resources 900 and adds administration 400. Net change=1200−900−400=−100: government failure in this stated comparison. If redesign reduces administration to 150 with other effects unchanged, net change=1200−900−150=150. The result depends on the unchanged-effects assumption. Cutting monitoring might instead reduce genuine gains. Suppose an information error overstates gross gains by 300: the redesigned estimate falls to 900−900−150=−150. Sensitivity analysis tests whether the judgement survives plausible changes; it does not replace evidence.
A housing control may create maintenance or supply problems; an agricultural guarantee may encourage unwanted surplus; energy support may weaken conservation; a bank rescue expectation may encourage risk. These are mechanisms to investigate, not claims that all such policies fail. In health, education and environmental programmes, poor measurement and slow feedback can misdirect resources even where intervention is valuable. A lack of market profit signals need not imply that every public provider is inefficient; explicit targets, user feedback and accountability can improve incentives. Include timing, monitoring, financing, capacity, elasticity and stakeholder impacts. End an evaluation with a conditional judgement about the most important constraint and a feasible comparison, rather than a memorized list.
Government failure occurs when intervention produces a net welfare loss. Causes include information gaps about benefits, costs or behaviour; weak incentives to control costs or respond to users; unintended consequences; excessive administration; and moral hazard when expected public protection encourages risk. A policy’s stated intention is not evidence of its net outcome.