Government failure
Also called: Non-market failure · Topic: Market Structures, Market Failure and Competition · NCERT: Beyond NCERT
Meaning
Government failure happens when a government steps into a market and makes the result worse, not better. It mirrors market failure: the market can go wrong, and so can the state. There are four main causes:
- Poor information: the state does not know the true costs or what people want.
- Rent seeking: groups spend effort lobbying to capture gains for themselves.
- Regulatory capture: a regulator ends up serving the industry it controls.
- Unintended consequences: a policy produces side effects nobody planned for.
It matters because it shows that market failure alone does not justify intervention. The cure must also be better than the disease.
Example
Class 9 (The Price Puzzle) gives a wheat case. Suppose the government caps the price at ₹20/kg when the market price is ₹30/kg. Farmers then supply less, and shortages follow. The Economic Survey 2019-20 also found that stock limits under the Essential Commodities Act made onion prices more volatile in 2019, not less.
Don't confuse with
- Market failure: here the unregulated market fails to reach an efficient result. In government failure, the intervention itself causes the inefficiency.