government failure

In the analysis of regulation, government failure (or non-market failure) is imperfection in government performance. The phrase "government failure" emerged as a term of art in the early 1960s with the rise of intellectual and political criticism of regulation. Building on the premise that the only legitimate rationale for government regulation was market failure, economists advanced new theories explaining why government interventions in markets were costly and tend to fail. For example, it was argued that government failure occurs when government intervention causes a more inefficient allocation of goods and resources than would occur without that intervention. In not comparing realized inadequacies of market outcomes against those of potential interventions, one writer describes the "anatomy" of market failure as providing "only limited help in prescribing therapies for government success." Government failures, however, occur also whenever the government performs inadequately, including when it fails to intervene or does not sufficiently intervene. Some use the phrase "passive government failure" to describe the government's failure to intervene in a market failure that would result in a socially preferable mix of output. Just as with market failures, there are different kinds of government failures that describe corresponding economic distortions.