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Theories of Market and Government Failures

In: Market or Government Failures?

Author

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  • A. S. Bhalla

    (University of Cambridge)

Abstract

Analysis of market failures and their causal factors is well established, but that of government failures is less so. It is for this reason that in this chapter our main concern will be with the latter. Non-market failures occur owing to difficulty in measuring non-market outputs independ­ently of inputs and thus in determining their quality. Rise in costs and overstaffing, as in the case of state or public enterprises may also cause these failures (see Chapter 6). Competition and the profit motive, the two factors which explain cost-cutting in the market case, are missing in non-market activity. Market failure, on the other hand, is generally known to occur when resource allocation is not optimal and a change would improve the welfare of all consumers without making anyone worse off.

Suggested Citation

  • A. S. Bhalla, 2001. "Theories of Market and Government Failures," Palgrave Macmillan Books, in: Market or Government Failures?, chapter 2, pages 24-44, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-62920-2_2
    DOI: 10.1057/9780230629202_2
    as

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