Assigment 2 Q+A

Hence this temptation is especially a problem for

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Unformatted text preview: ts rather than long term successful provision. Market failures Market failure happens when the allocation of goods and services by a free market is not efficient. Market failures can be viewed as scenarios where individuals' pursuit of pure self ­interest leads to results that are not efficient – that can be improved upon from the societal point ­of ­view. Market failures play plays an important role in many types of public policy decisions and studies. However, some types of government policy interventions, such as taxes, subsidies, bailouts, wage and price controls, and regulations, including attempts to correct market failure, may also lead to an inefficient allocation of resources, sometimes called government failure. Collective action problems Now the problem of collective action is that individuals are tempted to free ride on the efforts of others, especially when the individual is not very significant in achieving the group goal. Hence, this temptation is especially a problem for large groups. Olson gives us three explanations for that. First of all large groups tend to be anonymous, which makes it hard to forge a group identity around which there will be pressure to contribute. Also this anonymity in large groups means that the claim that no individual contribution is essential is more plausible. If lots of people contribute then the individual need not, if few people contribute then his efforts will make no difference. And the third reason is that enforcement is much harder in larger groups. Since those who do not contribute cannot be prevented from enjoying the achievements of the collective action. In anonymous groups it will not even be possible to identify those that have contributed from those that have not. Small groups on the other hand are more personal and thus allow for interpersonal pressure. Individual contributions may make a real difference, and everyone knows who contributed and who didn’t. Punishm...
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