Chapter 5 - Government’s role and government failure. This chapter will discuss how government’s power to coerce can be economically beneficial; difficulties associated with managing and directing the government; and government failure and why it happens. | Chapter 5 Government’s Role and Government Failure Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. This chapter will discuss how government’s power to coerce can be economically beneficial; difficulties associated with managing and directing the government; and government failure and why it happens. Government’s Economic Role Government’s right to coerce Force and economic efficiency Correcting for market failures Positive externalities Negative externalities Reducing private-sector economic risks LO1 The government’s ability to force people to do things can be used to increase economic efficiency. When it comes to both public goods and products offering positive externalities, the government can improve economic efficiency by using involuntarily collected tax money to subsidize production. Products that generate negative externalities are overproduced by the private sector. . | Chapter 5 Government’s Role and Government Failure Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. This chapter will discuss how government’s power to coerce can be economically beneficial; difficulties associated with managing and directing the government; and government failure and why it happens. Government’s Economic Role Government’s right to coerce Force and economic efficiency Correcting for market failures Positive externalities Negative externalities Reducing private-sector economic risks LO1 The government’s ability to force people to do things can be used to increase economic efficiency. When it comes to both public goods and products offering positive externalities, the government can improve economic efficiency by using involuntarily collected tax money to subsidize production. Products that generate negative externalities are overproduced by the private sector. The government can reduce this overproduction and improve economic efficiency by using involuntary policies such as direct controls, pollution taxes, and cap-and-trade schemes to force producers to bear higher costs. The government also reduces private sector economic risks by outlawing various forms of theft, deception, discrimination, etc Directing and Managing Government No invisible Hand Massive Size and Scope The Need for Bureaucracy The Need for Paperwork and Flexibility The Information Aggregation problem Lack of Accountability LO1 Governments face many problems when trying to organize millions of employees to carry out thousands of tasks. Government economic policies are not self-correcting; Correcting inefficient government policies is hampered by government’s massive size and scope; Since 536 elected officials could never directly supervise million people, government relies on many layers of supervisors to manage government affairs.; The bureaucracy is regulated by .
