The Role of Government in the Real Estate Market: Some Observations from the Experiences of Taiwan

The purpose of this study is to explore the appropriate role for government when the real estate market fails to work efficiently, and to discuss based on previous experiences of Taiwan how effectiveness of the governmentís intervention was. When there is a market failure, many will expect the government intervention. However they often ignore the accompanying intervention costs that may induce government failure. The paper first reviews the theoretical rationale for government intervention in a market failure and then proposes a conceptual structure, based on the New Institutional Economics theory, of the appropriate role of government in the real estate market to minimize the costs generated from market failure and government failure. The proposed theory is verified by the empirical example of Taiwanís real estate market experiences during the three abnormal price fluctuations in 1974,1980, and 1988. The methods and extents of government interventions in these three crises are examined to understand whether they hinder or facilitate the efficient allocation of resources in the real estate market and whether the interventions promote the economic growth. Finally a summary and conclusion of this study is given.