Government Failure

Government Failure

Society, Markets and Rules

Wilfred Dolfsma

This highly unique book takes a fundamental look at when and how a government can fail at its core responsibility of formulating rules. Government, representing society, relates to the economy by formulating the rules within which (market) players should operate. Although market and business failure are much discussed in the economics literature, government failure is often overlooked. This book addresses this gap, exploring in detail what constitutes government failure.

Chapter 2: How market and society relate

Wilfred Dolfsma

Subjects: economics and finance, institutional economics, law and economics, political economy, public choice theory, welfare economics, law - academic, law and economics, politics and public policy, political economy, public choice, social policy and sociology, economics of social policy


Views on how market and society relate to each other may be classified according to Figures 2.1 through to 2.3. There are three broad ways in which to perceive the relation between the two spheres. First is to see market(s) and society as two separate realms (Figure 2.1). Obviously, the neoclassical economic view, specifically the Walrasian approach, is an example of this. Market and society remain separate at all times. Indeed, the view of the market one finds in this literature is a highly abstract one – markets are ‘conjured up’, as Frank Hahn expresses – and the realistic nature of it might be questioned. As the market encroaches on society, a sense of alienation in the sense of Karl Marx might start – for some at least. This may be due to the differences in what motivates people in the two spheres, how they view the world in different terms when perceiving themselves in one sphere or the other (van Staveren 2001; Le Grand 2003). Another view captured in Figure 2.1 is the one Talcott Parsons and Neil Neal Smelser (1956) presented on the relation between market(s) and society. They argued that distinct markets (nota bene: plural) emerge at the boundaries between different spheres, such as polity and other sub-spheres in society, effectively insulating these spheres from one another (Finch 2007).

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