A government failure occurs when the government intervention in the market that was intended to correct a market failure actually makes the situation worse. Such a failure could occur for one or more of the following reasons:

Question

Quizplus · Accepted Answer

The Answer is (1) Government doesn't have an incentive to correct the problem. Political pressure to benefit some group or another will often dominate over pursuing the general welfare.
(2) Governments don't have enough information to deal with the problem. To intervene effectively, the government must have good information; but just as buyers and sellers often lack adequate information, so does government.
(3) Intervention in markets is almost always more complicated than it initially seems. Almost all actions have unintended consequences. Government intervention can prevent the market from dealing with the problem more effectively. As government deals with short run problems it eliminates the incentive that would have brought about long run market solutions.
(4) The bureaucratic nature of government intervention does not allow fine-tuning. When problems change, the government's solution often responds more slowly than the market.
(5) Government intervention leads to more government intervention. Opening the door to government intervention in one area where it may be helpful often enables the government to enter into other areas where intervention may be harmful.

A Government Failure Occurs When the Government Intervention in the Market