Government Intervention to Correct Market Failure
- Governments intervene in the workings of the market mechanism to correct market failures
- Some ways are obvious, others are less so
- Governments use a variety of methods to correct market failure
- The extent and intensity of such methods depends on how concerned the government is about a particular market failure, and whether the government intervention will produce a better allocation of resources.
- There are two types of method that the government can take:
- Methods that involve manipulation of the market mechanism (subsidies, indirect taxation)
- These are generally referred to as marked based solutions
- Non market methods
- Direct forms of provision and various forms of regulation and control
- Methods that involve manipulation of the market mechanism (subsidies, indirect taxation)