Jayb might be interested, Mattp should be but....

Peter_Puget · January 29, 2007

Markets fail when it is possible to make one person better off without making someone else worse off, thus indicating inefficiency. Governments fail when an intervention is unwarranted because markets are performing well or when the intervention fails to correct a market problem efficiently. Winston concludes from existing research that the cost of government failure may actually be considerably greater than the cost of market failure: "My search of the evidence is not limited to policy failures. I will report success stories, but few of them emerged from my search." The prevalence of market failure is due to a lack of conviction in favor of markets, the inflexibility of intervening government agencies, and political forces that enable certain interest groups to benefit at the expense of society as a whole. Winston suggests that government policy can be improved by making greater use of market-oriented solutions that have already produced benefits in certain situations.

"How can policy be improved? My first recommendation is that policymakers should pause and truly absorb the fact that government generally cannot be counted on to correct market failures efficiently by itself. Second, it is important for policymakers to acknowledge that the few microeconomic policies that have improved efficiency -- which the federal government eventually grew to support -- stem from market-oriented approaches."