Government Failure
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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.
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Chapter 4: Government policy: private incentives, public virtues?

Society, Markets and Rules

Wilfred Dolfsma


In his Presidential Address to the American Economic Association, in 1995, Amartya Sen discussed ways in which social decisions could be rationally reached in addressing ‘economic problems, including, among others, the persistence of poverty and deprivation despite general economic progress, the occurrence of famines and more widespread hunger, and threats to our environment and to the sustainability of the world in which we live’ (Sen 1995: 1). Sen’s work in social choice theory and welfare economics has provided a framework in which policies can be derived socially in order to address and alleviate economic problems. Sen follows ‘Aristotle’s general recommendation that choice should be governed by “desire and reasoning directed to some end”’ (Sen 1995). For Sen, the end-purpose of economic development is overcoming problems which make life difficult: economic problems, such as the persistence of poverty and hunger, political problems, such as the violation of political freedoms and basic liberty, and problems of maintaining the environment, among others. Existence and persistence of these problems pose a threat to the well-being of the individual members of society as well as to the very sustainability of our economic and social lives. Adequate and appropriate (even ‘radical’) policies must be implemented for development to be achieved.

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