The Changing Determinants of Economic Performance in the World Economy
- New Horizons in Institutional and Evolutionary Economics series
Chapter 15: Changing nature, extent and pervasiveness of government failures
15. Changing nature, extent and pervasiveness of government failures Even though markets seem to have become less efficient due to the recent changes in the world economy, it does not mean that the relative organizational efficiency of governments has necessarily improved. In fact, in this chapter, we argue that the traditional government failures have also tended to increase due to the recent technoeconomic changes. The first section introduces a simple typology of government failures and the second section shows how the dynamic forces of the world economy influence the different sources of these failures. 1 DIFFERENT TYPES OF GOVERNMENT FAILURES The analysis of government failures deals with economic inefficiencies caused by government interventions and organizations. In this chapter we analyze government failures that relate to the four dimensions of economic efficiency discussed in Part 3: allocative, technical, coordination and dynamic. The following questions help to define how different types of government failures are related to these dimensions of efficiency. Allocative efficiency: (a) What are the activities in which governments can actively intervene to improve economic efficiency and public welfare? (Potential government failure: government intervenes where private and third sector organizational arrangements would be more efficient.) (b) What is the most efficient type of intervention: public production, financial support, taxation or regulation? (Potential government failure: government uses a wrong policy tool.) (c) What is the appropriate level of government intervention? (Potential government failure: government intervenes at the wrong jurisdictional level.) Technical efficiency: (d) What are the most effective incentives for government...
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