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Definition of government failure:

This occurs when government intervention in the economy causes an inefficient allocation of resources and a decline in economic welfare.

Often government failure arises from an attempt to solve market failure but creates a different set of problems.

Reasons for government failure

Lack of incentives: In the public sector, there is limited or no profit motive. Because workers and managers lack incentives to improve services and cut costs it can lead to inefficiency. For example, the public sector may be more prone to over-staffing. The government may be reluctant to make people redundant because of the political costs associated with unemployment.

Poor information, politicians may have poor information about the type of service to provide. Politicians may not be experts in their department but concentrate on their political ideology.

Political interference Decisions made for short-term political gain - rather than sound economics, e.g. keep on unproductive workers. e.g. politicians may take the short-term view rather than considering the long-term effects

No consistency. Change of government often leads to change of approach and new political initiatives

Moral hazard. The government may offer a guarantee to all bank deposits to protect the financial system, but this could encourage banks to take risks - because they know they can be bailed out by the government.

Regulatory capture - When government agencies become too friendly with business/groups they are trying to regulate

Unintended consequences. Policies to reduce relative poverty 'means-tested benefits' can create 'welfare dependency.' For those on means-tested benefits, moving from benefits to work could lead to very little extra income because of lost benefits and higher taxes. Benefits can then solve one problem of relative poverty but create new problems of higher spending and lower levels of labour market participation.

Special interest groups. In the US, many types of business have special tax credits for their industry; this makes it difficult to reform the tax system, and leads to horizontal inequality - business with same income can be treated differently. In the Europe, farmers receive substantial financial support from the EU, making it difficult to reform CAP. Once people are used to receiving subsidies it can be politically difficult for the government to take it away.

Examples of government failure

White elephant projects. Concorde supersonic airliner was a joint venture between British and French government. It was seen as a prestigious venture, so even when studies suggested it was uneconomic, politicians didn't want to back-track but kept putting in public money. Developing Concorde cost the British and French governments £1.1 billion (about £11 billion in 2003 prices) before it even went into service-nearly ten times what was budgeted. (Economist)

Tax leads to fly-tipping. A tax on rubbish is a policy to overcome market failure. To try and include the external cost of rubbish in the price. However, a tax on rubbish can lead to illegal dumping of rubbish on the roads. This creates a different problem of fly-tipping.

Common Agricultural Policy. The CAP was intended to solve market failure in agriculture and protect farmers incomes, but the EU didn't take into account minimum prices would lead to over-supply; there were also unintended consequences of trade wars and environmental problems from farmers trying to supply as much as they could. See: CAP.

Prohibition strengthened the mafia. When the government banned alcohol in the US, it caused the mafia to supply alcohol, leading to a rise in organised crime.

Overcoming government failure

There are various things the government can try and do to overcome government failure

Give performance targets/profit incentives

Competitive tendering - where public sector bodies face competition from the private sector for the right to run a public service.

Employing outside private sector consultants to make decisions about how to cut costs.

Delegating certain decisions to non-political bodies. For example, setting interest rates was given to the Bank of England as politicians often set interest rates for political reasons.

See also: How to overcome government failure

Evaluation of government failure
It should be remembered many public services are not subject to the same profit goals. It is difficult to give a profit motive in health or education because the goal is not profit but the quality of service.

Also, although government failure is a real issue, it is often much less than the problems arising from market failure. Just because government intervention may be inefficient, doesn't mean we should try to tackle problems of pollution e.t.c.
Related

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Definition of government failure: This occurs when government intervention in the economy causes an inefficient allocation of resources and a decline in economic welfare. Often government failure arises from an attempt to solve market failure but creates a different set of problems. Lack of incentives: In the public sector, there is limited or no profit motive.

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1.5.8 Government intervention in markets

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This is a recording of an AS (Year 1) micro revision webinar looking at evaluation of government intervention in markets designed to correct for market failure. Good evaluation questions the effectiveness of intervention and we also look at some examples of government failure.

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Governments fail when the result of an intervention to resolve a market failure creates a net cost to society.

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This chart shows the ten organisations with an office in Belgium, holding at least one European Parliament access pass and having had one or more meetings with top EU Commission officals since December 2014, that declare the highest lobbying spending in the EU transparency register today. Top 10 generated: today

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A recurring theme on Lobbyfacts.eu is the absurd data that some organisations post, especially when it comes to declarations of annual lobbying expenditure. For us, the amount of money spent on lobbying is a really important indicator of lobbying size and likely influence, and so it is important that all registrants post accurate figures. We often highlight this when it comes to the major corporate players, but unfortunately, the NGO sector is not immune to the problems of either under-reporting or over-reporting financial data.

According to the data from the official EU lobby register, as ranked by Lobbyfacts, the top-spending NGO lobbyist is Ehkäisevä päihdetyö EHYT ry which records a wopping great lobby expenditure of €57,517,000 in 2014. Bizarrely this figure is nearly 10 times greater than the NGO's total recorded budget and it records only 1.75 full-time equivalent lobbyists. EHYT is "a preventive substance abuse work organisation that operates in all of Finland" which makes it very hard to believe that it is really the biggest lobbying NGO of the EU institutions. In fact, this huge recorded lobby expenditure makes it the fifth largest declarer of lobby costs in the whole register. It does not take much effort to work out that this, and many other entries in this ranking are wrong. EHYT only joined the register in October 2015, so it is very concerning that the checks which are apparently carried out by the lobby register authorities on new entries has not queried this.

The US-based Internet Society is ranked as the EU's second highest spending NGO lobbyist, declaring €46,800,115. That makes it more than ten times bigger than the highest spending US company recorded in the register, namely Microsoft with €4,500,000 - €4,749,000 spent in the year to June 2014. The Internet Society certainly seems to be active at the EU level: it has a Brussels office and it is a member of a couple of Commission expert groups and other forums. But it only records the full-time equivalent of 1.5 lobbyists and one European Parliament pass-holder. Curiously, we could not find it on Opensecrets, the US equivalent of LobbyFacts. This NGO only registered with the EU lobby register on 5 November 2015, and it seems clear that this entry is erroneous, especially considering its annual budget is recorded as €47,862,162.

Number 3 on the Lobbyfacts list is the International Association for the Evaluation of Educational Achievement which is based in the Netherlands and declares the equivalent of 140 full-time lobbyists. Its lobby budget and organisational budget for 2013 are identical at €15,768,000 but yet its mission is to "conduct large-scale comparative studies of educational achievement and other aspects of education", which does not sound as if it would have a major lobby component.

Organisation Name

Country head office

Lobbying costs declared

Plan International España is 12th on the list of Brussels' biggest NGO lobbyists, according to the Lobbyfacts rankings with an expenditure of €4,745,774; this would mean that in 2013-2014 according to its own register data, it spent 38 per cent of its total budget on EU lobbying.

Meanwhile, the Plan International EU office only declares €10,000-€24,999 for 2013-2014, although it also records a Brussels office, 4.5 full-time equivalent lobbyists and two European parliamentary pass-holders. Taken together, neither of these two Plan International registrations make much sense, with the former likely over-reporting and the latter likely under-reporting.

So, if our analysis is right, there is an absurdly high error rate in the lobby register, but why has this happened? There are several possible explanations.

Some keen to be seen to be as transparent as possible, may simply adopt their annual budget figure for their lobbying budget figure "to be on the safe side", or they overstate their costs because of confusion over what counts as genuine lobbying. Arguably there is a grey area around whether some NGO campaigning should count as EU lobbying, and perhaps the official register guidelines could be made clearer in this regard.

Others, especially those in receipt of EU funds, may (wrongly) think that receiving such a grant requires them to declare those funds as lobby costs, or even that they cannot receive a grant at all without registering. When registering, NGOs are asked to declare any EU funds received as part of their overall budget disclosure, but many of these grants are likely to have no link with lobbying, and thus should not be counted towards actual lobby costs. Commission DGs should clarify this with grant recipients.

Finally, arguably, some organisations which are national members of international NGOs should provide a combined entry coordinated by a central office, rather than multiple ones. The official EU lobby register guidelines say: "To avoid multiple entries and reduce the administrative burden, organisations registered in or operating in more than one country (e.g. multinationals), should register once only. Registering generally falls to the branch or office dealing with the multinational's EU affairs (usually based in Belgium)." This 'single entry principle' applies to NGOs too, like Plan International.

We have also run the names of the top 25 lobby-spending NGOs through the integritywatch.eu database to see which organisations have held lobby meetings with commissioners, cabinet members or directors-general. From 1 December 2014 to 3 July 2015, only seven of these 25 NGOs had held such lobby meetings and four of these had only had one meeting each. Is it likely that NGOs will have multi-million euro lobby budgets but not meet with the top members of the Commission? We think not. Integritywatch.eu shows that, in the list of organisations having the greatest number of high-level lobby meetings with the Commission between December and July, three NGOs (WWF, Greenpeace, and Climate Action Network) feature; yet they do not appear on the LobbyFacts list of top NGO lobby spenders. This can be seen as a further indication that the list of biggest NGO spenders on lobbying, as recorded by the EU lobby register, is flawed.
All data correct as of 11 November 2015.

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List of biggest NGO spenders on EU lobbying reveals register's absurd data

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A recurring theme on Lobbyfacts.eu is the absurd data that some organisations post, especially when it comes to declarations of annual lobbying expenditure. For us, the amount of money spent on lobbying is a really important indicator of lobbying size and likely influence, and so it is important that all registrants post accurate figures.

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​This short revision video clip covers some examples of where well-resourced lobbying by businesses and industry associations can influence and eventually shape the direction of public policy in the UK and other countries. Lobbying may lead to government failure especially if it causes regulatory capture.

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​This short revision video clip covers some examples of where well-resourced lobbying by businesses and industry associations can influence and eventually shape the direction of public policy in the UK and other countries. Lobbying may lead to government failure especially if it causes regulatory capture.

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The causes and examples of government failure and what that means in a market Milton Friedman on Market and Government Failure - http://www.youtube.com/watch?v=Moc7gwMJabM

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AS/IB 24) Government Failure - An understanding of how governments can fail when intervening in markets http://www.youtube.com/watch?v=Moc7gwMJabM - Friedman's take on this topic

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Government Failure I A Level and IB Economics

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Effects of Price Ceilings and Price Floors

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Carbon Heating Film Installation Instructions Under Laminate Flooring

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​The UK has introduced a Carbon Price Floor which applies to fossil fuels used for electricity generation. The minimum price for carbon emissions is designed to provide a stable carbon price signal as a way of internalising externalities. But what are some of the arguments for and against imposing a carbon price floor?

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We've just flicked the switch on moving all our digital resources to instant digital download - via our new subject stores.

For every subject you can now access each digital resource as soon as it is ordered. This will always be the latest edition of each resource too (and we'll update you automatically if there is an upgraded version to use).

Simply add the required resources to your cart, checkout using the usual options and your resources will be available to access immediately via your mytutor2u account.

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Government failure - green heating plans branded a 'total waste of money' | tutor2u Economics

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We've just flicked the switch on moving all our digital resources to instant digital download - via our new subject stores. For every subject you can now access each digital resource as soon as it is ordered. This will always be the latest edition of each resource too (and we'll update you automatically if there is an upgraded version to use).

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The cost of Britain's controversial private finance initiative will continue to soar for another five years and end up costing taxpayers more than £300bn, according to a Guardian analysis of contracts that were sanctioned by the Treasury.

Despite recent coalition criticism suggesting that the government was going cold on the scheme, recently published figures indicate that repayments will continue ballooning until they peak at £10.1bn a year by 2017-18.

The 717 PFI contracts currently under way across the UK are funding new schools, hospitals and other public facilities with a total capital value of £54.7bn, but the overall ultimate cost will reach £301bn by the time they have been paid off over the coming decades.

Much of this difference is due to ongoing running costs built into the contracts, but the schemes have also been criticised for providing poor value for money compared with the interest rates the government would pay if it borrowed money directly to pay for the schemes.

Last week, South London Healthcare Trust, which runs three hospitals in south-east London, was placed in administration by the health secretary as it struggled to meet the cost of its PFI obligations.

Dave Prentis, general secretary of the union Unison, said on Thursday night: "The NHS is just the start of the story.

"We're sitting on a PFI debt time bomb, and the sheer scale of the burden paints a seriously grim picture for the future of our public services."

PFI had left the UK with a "staggering mountain of debt," Prentis said.

The Treasury said on Thursday that it expected to make an announcement soon following a "fundamental review" of PFI and a search for alternatives, initiated by ministers late last year amid concern that too many of the deals represent poor value for money. Ministers recognised the concern felt about PFI and had already acted to make savings, added a spokeswoman.

The Treasury said that future liabilities under PFI total about £242bn (once existing payments are taken into account) and that this figure would shrink to £122bn if it were adjusted for future expected inflation. Nonetheless, details of the contracts compiled by the Treasury make clear that some NHS organisations will end up paying almost 12 times the initial sum over what is usually a 30-year contract.

For example, while the capital cost of rebuilding Calderdale Royal Hospital in Yorkshire is £64.6m, the scheme will end up costing Calderdale and Huddersfield NHS Foundation Trust a total of £773.2m. Similarly, the cost of building the new Walsgrave district general hospital in Coventry will jump from an initial £379m to an eventual £4bn.

Most of the 717 contracts analysed were agreed under Labour, but a number have been signed recently and were agreed by the coalition.

In 2007-08, the total annual repayment cost of all PFI schemes in the UK was £5.78bn. But by 2017-18 that will have almost doubled to £10.1bn in a decade, and repayments will cost at least £9bn a year for the decade after that.

The Treasury document also reveals that 39 further PFI projects were being procured in March this year, with total capital costs of £5.36bn, despite senior ministers including David Cameron and George Osborne having heavily criticised Labour's extensive use of PFI while in office.

These deals will add tens of billions of pounds more to the £301bn price tag.

Before the 2010 election, Liberal Democrat leader Nick Clegg condemned PFI as "a bit of dodgy accounting - a way in which the government can pretend they're not borrowing when they are, and we'll all be picking up the tab in 30 years".

In opposition, Osborne pledged that the Conservatives would stop using PFI and denounced Labour for relying so much on a source of finance that he said was "totally discredited". " We need to find new ways to leverage private-sector investment. Labour's PFI model is flawed and must be replaced," he said in November 2009.

But Margaret Hodge, chair of the powerful Commons public accounts committee, said the coalition had failed to come up with the promised alternative since coming to power. She accused ministers of extending PFI in effect through a recent scheme to encourage housing associations to build new social housing using borrowed money - a move she warned could put the viability of some of them in doubt by overloading them with unwanted debt.

Hodge said that "inevitably" some public services would have to be cut in coming years as sectors such as the NHS struggle to meet rising PFI repayments at a time when budgets are expected to remain tight. The squeeze on public spending is expected to last until 2017 or even beyond.

"£301bn is a hell of a lot of money," Hodge added. "The irony is that we privatised the buildings but nationalised the debts. It's crazy."

The huge sums revealed in the Treasury's list have renewed concerns about the wisdom of using PFI to build a wide range of public , facilities when the eventual costs are so much higher.

For example, Barts Health NHS Trust in London says the construction of new medical facilities at its two main sites will cost £1.1bn, but the document reveals that the eventual cost will be £7.1bn by the time the contract is fully paid off in 2048-49.

That will cost the trust an average of £115m a year at today's prices for the entire duration of the contract, the trust confirmed.

"The full business case clearly demonstrated that the private finance initiative option provided the best solution for the delivery of services and value for money for the NHS, compared with the publicly funded alternative," said a Barts spokeswoman.

"Our new hospitals replace outdated, awkwardly configured buildings with fantastic new facilities that meet the challenge of providing healthcare to a local population with some of the most challenging health needs in the UK."

A Treasury spokeswoman said: "The government has already taken action to drive savings in PFI and as part of its review of PFI aims to deliver a new, cheaper model, which will ensure a fair deal for the taxpayer now and in the longer term.

"The government has for the first time published a clear assessment of PFI liabilities."

An aide to George Osborne said : "Under Labour PFI offered little value for money and was hidden off balance sheet by Ed Balls and Gordon Brown.

"We have already driven savings in existing PFI projects, made the value for money criteria much stricter and for the first time published our PFI liabilities in the whole of government accounts."
Topics

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The cost of Britain's controversial private finance initiative will continue to soar for another five years and end up costing taxpayers more than £300bn, according to a Guardian analysis of contracts that were sanctioned by the Treasury.

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A "heavy smoker" caught smuggling 33,000 cigarettes into Scotland has been ordered to pay more than £9,000 in duties.

Iwona Monica Kowal was caught with contraband cigarettes hidden in her baggage on three separate occasions at Glasgow and Edinburgh airports in 2013.

The 44-year-old, from Dundee, admitted trying to avoid paying excise duty.

A civil order was made for recovery of the £9,240, and a sheriff sentenced Kowal to 200 hours of unpaid work.

The English student was first caught with 15,800 contraband cigarettes at Glasgow Airport on 8 April, 2013, as she flew back from Poland.

She was let off with a warning that the upper limit was 800 cigarettes, but was caught with a further 15,000 on 2 June that year after arriving at Edinburgh Airport from Gdansk. She was caught again with 3,800 cigarettes on 21 October.

'Serious concerns'

On each occasion, Kowal insisted that she had funded the trips from her own savings, and said the cigarettes were for herself, her partner and a friend.

She claimed to smoke two cartons a week herself, and defence agent Charlie McCusker told Paisley Sheriff Court that Kowal had become a "heavy smoker" following the death of her son.

The court heard that HM Revenue and Customs suspected that the cigarettes were being brought into the country for onward sale.

Sheriff Colin Pettigrew said he also had "serious concerns" about the idea the cigarettes were for personal use.

However, after hearing that a civil action for recovery of the duty money had been granted, he sentenced Kowal to a 12-month community payback order, requiring her to complete 200 hours of unpaid work.

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A "heavy smoker" caught smuggling 33,000 cigarettes into Scotland has been ordered to pay more than £9,000 in duties. Iwona Monica Kowal was caught with contraband cigarettes hidden in her baggage on three separate occasions at Glasgow and Edinburgh airports in 2013. The 44-year-old, from Dundee, admitted trying to avoid paying excise duty.

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Ministers are proposing a minimum price of 45p a unit for the sale of alcohol in England and Wales as part of a drive to tackle problem drinking.

The Home Office has launched a 10-week consultation on the plan, arguing it will help reduce the levels of ill-health and crime related to alcohol.

It is also considering banning multi-buy promotions, such as two-for-the-price-of-one.

The 45p proposal is 5p higher than the figure suggested by ministers in March.

It comes after pressure has been mounting on the government to follow Scotland's lead, where 50p has been proposed.

The aim of a minimum price would be to alter the cost of heavily-discounted drinks sold in shops and supermarkets. It is not expected to affect the price of drinks in many pubs.

The Home Office said the consultation was targeted at "harmful drinkers and irresponsible shops".

A spokesman added: "Those who enjoy a quiet drink or two have nothing to fear from our proposals."

The 45p minimum would mean a can of strong lager could not be sold for less than £1.56 and a bottle of wine below £4.22.

Research carried out by Sheffield University for the government shows a 45p minimum would reduce the consumption of alcohol by 4.3%, leading to 2,000 fewer deaths and 66,000 hospital admissions after 10 years.

The number of crimes would drop by 24,000 a year as well, researchers suggested.

There has been evidence of some outlets selling alcohol at a loss to encourage customers through the doors, with cans of lager going for 20p and two-litre bottles of cider available for under £2.

'Pre-loading'

Ministers have been particularly critical of such practices, blaming them for what has been dubbed "pre-loading", where people binge-drink before going out.

They have linked this phenomenon to the rising levels of alcohol-related violence and hospital admissions, of which there are more than a million a year.

But the idea of introducing a minimum price - first proposed at 40p in the government's alcohol strategy published in March - has been met with opposition by the industry.

The Scottish government plan, which is not due to start until April 2013, was challenged on legal grounds by the Scotch Whisky Association and the European Spirits Organisation.

What's a unit?

Half a pint of standard strength (4%) beer, cider or lager

A single pub measure of spirit (25ml)

Half a standard 175ml glass of wine

Alcohol units guide The facts about alcohol
They claimed it was up to Westminster, rather than Holyrood, to decide such an issue and they said it was also incompatible with the EU's "general principles of free trade and undistorted competition".

The legal challenges were heard in the Court of Session in Edinburgh last month and a judgement is expected before the end of the year.

Separately the European Commission is looking into the legality of the Scottish government's actions.

In Northern Ireland, consideration is also being given to minimum pricing, although no final decision has been taken yet.

Andrew Opie, of the British Retail Consortium, said: "Most major retailers believe minimum pricing and controls on promotions are unfair to most customers. They simply penalise the vast majority, who are perfectly responsible drinkers, while doing nothing to reduce irresponsible drinking.

"The government should recognise the role of personal responsibility. It should not allow interfering in the market to regulate prices and promotions to become the default approach for public health policy."

Miles Beale, chief executive of the Wine and Spirit Trade Association, agreed, saying there was "no evidence" minimum alcohol pricing would be effective in tackling alcohol misuse.

The 45p effect

On the face of it, there seems to be little difference between the 45p minimum unit price for alcohol now being proposed and the 40p figure put forward earlier this year.

But in terms of consumption levels - and the subsequent criminal and health costs - the shift is significant.

Research by Sheffield University shows that at 45p consumption drops by 4.3% - a 75% greater effect than would be seen at 40p.

In terms of deaths over a 10-year period, the impact is nearly double. A 45p minimum will save over 2,000 lives compared to under 1,200 for 40p. The effect on crime is also two-fold.

But what the research also shows is that another 5p on the minimum price to bring it to 50p - as Scotland has done - would see a similar increase in impact, which is why campaigners have been pushing for more.

Another area of interest - and possible controversy - is the effect this will have on moderate drinkers.

The research shows a 45p minimum price also affects their buying habits, reducing consumption by 2.3%. That is greater than the reduction likely to be seen in young hazardous drinkers - the so-called binge drinkers.
Why are we so unhealthy?
But health campaigners believe a minimum price is an important step in tackling problem drinking.

Dr Vivienne Nathanson, from the British Medical Association, said the changes in pricing could help to stop young people binge drinking.

She told the BBC: "Alcohol is a dose-related poison, in other words the more you drink the more harm it causes, so by reducing the amount they are drinking over the safe limit you are helping to save them.

"It isn't a small minority of the population who are drinking excessively, it's nearly a quarter. That's a huge number of people who are drinking at levels that are hazardous to their health and we really have to throw everything we can (at it) to save lives."

Eric Appleby, chief executive of Alcohol Concern, said: "We're paying a heavy price for alcohol misuse and setting a minimum unit price will help us on the road to changing this.

"But we cannot cut the misery caused by excessive drinking, whether it's crime or hospitalisation, through price alone.

"We need tighter controls around licensing, giving local authorities and police forces all the tools they need to get a firm grip on the way alcohol is being sold in their area. We have an opportunity to make an enormous difference to the lives of thousands of people - we must seize it."

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Ministers are proposing a minimum price of 45p a unit for the sale of alcohol in England and Wales as part of a drive to tackle problem drinking. The Home Office has launched a 10-week consultation on the plan, arguing it will help reduce the levels of ill-health and crime related to alcohol.