2. Defining and Measuring Government Failure

This chapter delves into the concept of government failure, highlighting its role as a primary cause of resource misallocation globally. It defines government failure as a policy intervention that significantly wastes resources, including firms’ compliance costs and taxpayers’ funds. The text explores three scenarios where government policies can lead to welfare losses, negligible effects, or excessive costs. It introduces a unifying framework based on the Bergson–Samuelson social welfare framework to categorize different types of government failures. The chapter also discusses how government policies can affect efficiency and equity, using examples such as addressing market failures and pursuing social goals. It concludes by emphasizing the importance of empirical measurement in assessing government failure and its impact on social welfare.