Government Identification of Market Failures
Not really—at least not consistently enough to give you confidence that “market failures” are being targeted accurately. The informational critique says governments are unlikely to know enough about the “location and ...
Not really—at least not consistently enough to give you confidence that “market failures” are being targeted accurately. The informational critique says governments are unlikely to know enough about the “location and magnitude” of market failures to make the correct decisions about where/what to intervene in. [:cite[1]{ln=3}] More broadly, the paper notes that market failures are “rarely observable directly,” which makes it difficult to do the full assessment needed to confirm that interventions truly alleviate the relevant market failures (and don’t cause other distortions). [:cite[2]{ln=6}], [:cite[2]{ln=4}] And it emphasizes uncertainty: even if governments can act on widespread market failures, the critique is that their knowledge is insufficient in practice—so the argument becomes: governments can’t reliably pick winners . [:cite[1]{ln=3}], [:cite[1]{ln=5}] The paper also frames the “can we identify market failures” issue as part of the larger measurement/evaluation problem: there’s an “inherent difficulty in ascertaining the causal effects” because policy is nonrandom and targets industries for reasons that can’t be perfectly observed. [:cite[3]{ln=2}] So the direct answer to your question is: governments can’t be assumed to identify market failures accurately , because the key parameters (where they are and how big they are) are not directly observable and governments face substantial information constraints. [:cite[1]{ln=3}], [:cite[2]{ln=6}]