LectNotes-4-Oct4-2330-GovFail - GOVERNMENT FAILURES Prof....

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1 GOVERNMENT FAILURES Prof. Salazar Session/Week 4 – Sosc 2330 October 4, 2010
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2 OBJECTIVES Market failures disable private markets and prevent it from providing important goods Government may be more efficient than private markets Governments may, however, fail Need to strike a right balance between markets and government: Example: Government’s anti-smoking policies
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3 Canadian Cell Phone Users v BELL, ROGERS, TELUS (2007, 2010) Is the charge of ‘system access fees’ unfair? We paid S A Fees for 20 years! Is the law’s response effective? Long and costly litigation? Difficult to substantiate market failures in court setting? Meanwhile inefficiencies unresolved? Instead, greater market competition?
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4 LIMITS OF GOVERNMENT INTERVENTION i.e. legislation, court decisions
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5 IMPERFECT INFORMATION MARKET POWER EXTERNALITIES MARKET FAILURES GOVERNMENT INTERVENTION Law + Direct Control OTHER FAILURES Public goods, behavioural/rationality (e.g. self-interest), Transaction cost, unemployment REGULATORY OPTIONS FOR CORRECTING MARKET FAILURES SELF-REGULATORY POWER OFMARKETS e.g. competition eliminates monopolies INDUSTRY SELF-REGULATION e.g. own advertising standards
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6 FROM MARKET FAILURES TO GOVERNMENT FAILURES The Challenge of Public Goods, Market Failures, etc.
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7 GOVERNMENT INTERVENTION
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8 ADVANTAGES OF GOVERNMENT INTERVENTION Government is able to exert compulsion to mitigate collective problems Health insurance: eliminate (adverse) selection and forcing all to deal with one insurer; effective in controlling moral hazard (e.g. gov. negotiates fees with doctors) Taxes required for provision of public goods that market fails to provide Economy becomes more efficient as a result e.g. no externalities New technologies can make gov more efficient
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9 FORMS OF GOVERNMENT INTERVENTION Federal, provincial and municipal: Provision of Public Services e.g. provision of universal public health Legislation (and court decisions) e.g. Environmental Protection Act Regulation e.g. Speed limit regulations, food safety regulation
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10 GOVERNMENT FAILURES Government intervention may, however, cause inefficient allocation of resources, fail to provide (public) goods and create distortions that would not occur without that intervention
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11 GOVERNMENT FAILURES 1. Rational Ignorance citizens and law-makers lack information e.g. consequence of rent control legislation citizens’ preference for public goods, which? e.g. parks? 2. Regulatory Failure (design/enforcement): Limited control over consequences e.g. imposing standards may not prevent housing service deterioration as a result of rent control legislation Limited control over implementation/enforcement of measure, program or legislation e.g. bias, ambiguities, bureaucrats’ incompetence Implementation or enforcement is costly
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12 GOVERNMENT FAILURES
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This note was uploaded on 11/16/2010 for the course NATURAL SC NATS 1505 taught by Professor Isley during the Spring '10 term at Columbia State Community College.

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LectNotes-4-Oct4-2330-GovFail - GOVERNMENT FAILURES Prof....

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