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The anatomy of government failure

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  • William Keech
  • Michael Munger

Abstract

Government failure is a much bigger problem than its contemporary treatment implies. Setting aside natural disasters, most of the great catastrophes of human history have been government failures of one sort or another. We argue that many so-called market failures are government failures because government defines the institutions in which markets succeed or fail. The concept of government failure has been trapped in the cocoon of the theory of perfect markets. Narrowly defined deviations from market perfection have been designated market failures, for which government corrections may or may not really be a solution. Government failure in the contemporary context means failing to resolve a classic market failure. We propose an alternative approach for evaluating whether government fails: the Pareto standard. If an available Pareto improvement is not chosen, or is not implemented, that is a government failure. We organize government failure into two types: substantive and procedural. Substantive failures include the inability or unwillingness to maintain order, to maintain sound fiscal and monetary policies, and to reduce risks of transaction costs, which we classify as corruption, agency and rent-seeking. Procedural failures are inadequacies of available social choice mechanisms, causing collective decisions to be arbitrary, capricious, or manipuated. We conclude with some reflections on human rationality and the implications of behavioral economics. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • William Keech & Michael Munger, 2015. "The anatomy of government failure," Public Choice, Springer, vol. 164(1), pages 1-42, July.
  • Handle: RePEc:kap:pubcho:v:164:y:2015:i:1:p:1-42
    DOI: 10.1007/s11127-015-0262-y
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    3. Mause, Karsten, 2019. "Governance im Politikfeld Wirtschaftspolitik [Governance in the Field of Economic Policy]," MPRA Paper 96468, University Library of Munich, Germany.
    4. Giuseppe Di Vita, 2023. "The economic impact of legislative complexity and corruption: A cross‐country analysis," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(2), pages 1801-1825, April.
    5. Glenn Furton & Adam Martin, 2019. "Beyond market failure and government failure," Public Choice, Springer, vol. 178(1), pages 197-216, January.
    6. Bjørnskov, Christian, 2020. "Economic Freedom and the CO2 Kuznets Curve," Working Paper Series 1331, Research Institute of Industrial Economics.
    7. Daniel Albalate & Germà Bel, 2018. "“Do government formation deadlocks damage economic growth? Evidence from history’s longest period of political deadlock”," IREA Working Papers 201817, University of Barcelona, Research Institute of Applied Economics, revised Jul 2018.
    8. Istiak Ahmad & Fahad Alqurashi & Ehab Abozinadah & Rashid Mehmood, 2022. "Deep Journalism and DeepJournal V1.0: A Data-Driven Deep Learning Approach to Discover Parameters for Transportation," Sustainability, MDPI, vol. 14(9), pages 1-72, May.
    9. Pim Derwort & Nicolas Jager & Jens Newig, 2019. "Towards productive functions? A systematic review of institutional failure, its causes and consequences," Policy Sciences, Springer;Society of Policy Sciences, vol. 52(2), pages 281-298, June.
    10. Rafael Galvão de Almeida, 2019. "How economics became an interventionist science (and how it ceased to be)," Textos para Discussão Cedeplar-UFMG 612, Cedeplar, Universidade Federal de Minas Gerais.
    11. Kärnä, Anders & Karlsson, Johan & Engberg, Erik & Svensson, Peter, 2020. "Political Failure: A Missing Piece in Innovation Policy Analysis," Working Paper Series 1334, Research Institute of Industrial Economics, revised 21 Apr 2022.

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    More about this item

    Keywords

    Market failure; Government failure; Competitive equilibrium theory; Collective choice mechanisms; A10; A12; D02; D6; H1;
    All these keywords.

    JEL classification:

    • A10 - General Economics and Teaching - - General Economics - - - General
    • A12 - General Economics and Teaching - - General Economics - - - Relation of Economics to Other Disciplines
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D6 - Microeconomics - - Welfare Economics
    • H1 - Public Economics - - Structure and Scope of Government

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