ABSTRACT
Early development economists recognized the role of government in providing "social overhead capital" or "infrastructure" to facilitate economic development. However, most analysis focused on a second role: government should, they believed, undertake activities that would compensate for "market failures". Market failures were thought to result from "structural rigidities", which were defined as a lack of responsiveness to price signals. One of the lessons of experience with development is that governments are not omniscient, selfless, social guardians and corrections are not costless. This experience has naturally raised a large number of interrelated questions. They may broadly be grouped in four categories: What is "the government"? What is the comparative advantage of government? What are the dynamics of government intervention? Can a positive theory of political behavior be formulated that will help explain when and how alternative policies will evolve in the political arena? The chapter addresses and provides answers to these questions in detail.
