Lecture - If the Market Fails Can the Government Succeed? A...

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1 If the Market Fails Can the Government Succeed? • A competitive market will produce Pareto optimal outcomes as long as: – Informational asymmetry does not destroy the market. – There is no monopoly power. – Externalities are “internalized” • If these conditions are not met, then there seems to be a role for government intervention. – While this argument for intervention is necessary, it is not sufficient. – If the government also fails, then outcomes may be no better than in an imperfect market. The Mechanisms of Democratic Government • There are (at least) two schools of thought: – Government, based on the limited information that it has, tries its best to set policies that maximize social welfare. –“Public choice school”: The actions of government is the outcome of interplay between competing interest groups, which often do not lead to socially optimal policies. What Does Social Welfare
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This note was uploaded on 02/11/2012 for the course ECON 51 taught by Professor Tendall,m during the Fall '07 term at Stanford.

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Lecture - If the Market Fails Can the Government Succeed? A...

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