ABSTRACT
Although most economists agree that government intervention into private-sector activities, be it regulation, industrial policy or social policy, can be justified only when it is in response to market failure, at that point agreement ends. Views differ on the precise definition of market failure; under what conditions it occurs; the appropriate governmental policy to address that market failure; who ought to determine that policy; who ought to control the behavior of government, and how; the calculation of policy cost and policy cost components; and which market failures justify government intervention (after taking policy cost into consideration)? Obviously, these issues have to be addressed in context, and conclusions may differ from case to case. However, the trend towards deregulation and re-evaluating regulation in industrialized market economies since the mid-1970s, and the collapse of centralized economic systems in former socialist countries towards the end of the 1980s, invites two observations. First, it is quite often dangerous to ask the government to respond to market failures. Second, the conventional view of the state or the government’s competence tends to be too optimistic.
