Governments fail when they intervene in the economy and instead cause undesirable effects. They fail for a variety of reasons, including myopia, imperfect information, and undue pressure from interest groups (Young, 2021). Myopia is when leaders fail to consider the long-term effects of a strategy before implementing it. Imperfect information occurs when the administration enacts policy changes using insufficient or inaccurate information. Lastly, government’s economic policies can fail due to pressure from lobbyists and other interest groups. When the government fails to prioritize citizens, it can implement a policy that does not serve the interests of the civilians.
Government failure is analyzed by comparing the costs of an intervention with its benefits. In economics, this failure occurs when the cost of government involvement exceeds the benefits generated. For instance, an administration may construct a road to ease traffic along the highway. However, if the cost of building the road surpasses the economic and social welfare derived from the road, then the road constitutes government failure.
Comparative institutional analysis (CIA) can be utilized to assess government failure. This theory holds that goals can be achieved through different institutions, all of which are imperfect. Thus, a critique of one organization is incomplete without consideration of other institutions (Puig & Shaffer, 2018). For instance, when analyzing government failure, it is necessary to include a critique of the free market. CIA would be useful in assessing government failure because it seeks to understand whether the failure could have been avoided by following a real-world alternative approach. For instance, it could be used to study whether a social problem can best be solved through government intervention or leaving it to the free market. Therefore, comparative institutional analysis is an effective tool of studying government failure.
References
Puig, S., & Shaffer, G. (2018). Imperfect alternatives: institutional choice and the reform of investment law. American Journal of International Law, 112(3), 361-409.
Young, D. R. (2021). Government failure theory. In The nature of the nonprofit sector (pp. 235-237). Routledge.