Government failure

Under state failure (also policy failure ) is understood in economics caused by government intervention in the market, based on the neoclassical theory of sub-optimal results. This can be expressed for example as inefficient allocation of goods, instability or inefficiency in production. In the new political economy government failure is seen as a counterpart to the market failure.

Problems

Government failure leads in most cases in welfare losses, such as:

• Unit solutions: treatment of individuals as if they had identical preferences. The resulting Wohfahrtsverluste are greater the more differentiated are the needs.
• Package solutions: choose civil party with an overall program ( package ), which they rarely agree on all points.
• Coalition solutions: After a selection of measures under coalitions may be practiced otherwise than previously announced by the individual parties.

Another problem is sometimes the influence of interest groups on government decision-makers ( lobbying ).

Causes

State failure is attributed to the fact that constitutionally established rules of decision-making processes produce inefficient states and that the exercise of power is inefficient within these rules. Thus, the delegation of tasks leads within the state apparatus to problems such as the

• Principal-agent problem: The bodies responsible act not necessarily in the interest of the principal.
• Bureaucracies: The aim of bureaucracies is usually not the minimization of costs, but to maximize the available budget. This tendency can be aggravated by the monopoly position of authority and lack of controllability.

State failure and Keynesianism

The concept of state failure must be understood as a response to the Keynesian school, the function of controlling the economic process zuwies the state ( economic policy). Critics of Keynesian economic policy point, analogous to market failure, to situations in which state action systematically leads to inefficiency, especially in the provision of public goods. The reasons they give:

• As a self- utility-maximizing individuals makes politicians are primarily oriented, which is why they only served the common good, if they would promise an advantage from
• Short term perspective: applicable is for politicians in the first place the next election. Therefore unpopular decisions would be delayed or postponed and takes into account long-term consequences of inadequate.
• The orientation to their own benefit do economic policymakers influenced by interest groups such as trade associations and trade unions. This behavior is difficult for voters to control. (See also Lobbying, principal-agent theory, political pension ( rent seeking ) )
• The complexity of the market leads to uncertainty in planning, execution and the short-and long -term effects of economic policy measures.
• Dictates of the bureaucracy: If the bureaucracy is extending the scope of ever new fields of action and takes place in the sequence is no cost -benefit analysis more, it prevents the efficient use of production factors.