Government Failure and Market Failure

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					Government Failure and Market Failure
In the modern market economy, market regulation and government intervention, free
competition and macro-control, is closely related and intertwined, an important and
indispensable part. Because the full effectiveness of market mechanisms only under
the strict hypothesis to take into

Li, while the government intervention also just perfect with the "ideal
government" link. In other words, market regulation and government
intervention are not omnipotent, has inherent defects and failures, the failure of the
objective may be, the key is to seek economic and social development of market
mechanisms and the best combination of government regulation, making government
intervention in the remedy and correcting market failures, while up to avoid and
overcome government failure, which China's socialist market economy
system and improve, no doubt of great theoretical and practical significance.

First, market failure the government's active intervention as necessary

Western developed countries and a number of late- modern market economy countries,
the actual history and track the evolution of government functions that the market
regulator this "invisible hand" has its energy, but also it can not.
On the one hand, the market economy is the human activity so far the most efficient
and economic operation mechanism and the allocation of resources means that it has
any other mechanisms and means irreplaceable functional advantage: ~ is the
economic interests of the irritant. The interests of market players and free competition
drive the formation of ~ kind of strong power, it is a great mobilization of
people's initiative and creativity, promote the production technology,
production organization and product mix of constant innovation, high efficiency of
resource allocation. Second, market flexibility in decision making. In a market
economy, producers and consumers as the main micro-economic structure of the
decentralized decision- making, changes in supply and demand timely and effective
response to a flexible, quickly balance supply and demand, reducing wastage of
resources, improve the efficiency of decision- making. Third, the effectiveness of
market information. Efficient allocation of resources required to fully use all the
information economy. Substituting the price system as the main content of
information architecture can make a Jingjihuodong each participant was simple, Ming
Xi, efficient information and full and effective to use and thus help to improve
resource allocation is reasonable. In addition, the healthy functioning of market
economy also help prevent and reduce the direct administrative control of the
inefficiency and corruption. On the other hand, the market economy has its limitations,
the functional defects are inherent in the market itself is difficult to overcome alone,
completely rejected government intervention to market regulation will be greater than
the advantage of defects, leading to "market failure" (market
failure), which requires the help of superior market power over - the government only
the "visible hand" to correct market failures make up.
(-) Market can not maintain the overall balance and stability of the national economy
and the development of coordinated

Market regulation to achieve economic equilibrium is an ex post regulation and
decentralized decision-making through the completion of the balance, it often has a
considerable degree of spontaneity and blindness, resulting cyclical economic
fluctuations and supply and demand imbalance. In food production, livestock
breeding sectors long production cycle will occur typical "cobweb
fluctuations." In addition, the market economy, rationa l choice of
individuals in individual industries, individual markets can adjust the supply and
demand, but the individual's rational choice of integrated effect is likely to
lead to irrational collective behavior, such as when the economy when inflation occurs,
as rational person would naturally make rational choices - to increase spending to buy
goods, and each person's rational choice is the collective effect arising
from the non-rational choice

- To maintain and even aggravate inflation; Similarly, the recession, it will also a
rational choice for each individual - to reduce spending and lead to irrational
collective behavior - to maintain and even exacerbate depression. Furthermore,
market players in the competition, in order to maximize profits, often to fund
investment period is short, fast convergence, low risk industries, led to irrational
industrial structure. This requires that the Government use the program, use of fiscal,
monetary, credit, exchange rates, preferential policies a nd measures such as sanctions.
Economic levers and legal means, in particular, to "discretion"
of the country's macroeconomic policy, a timely change of variables and
parameters of operation of the market in order to reduce economic volatility and the
frequency at the same time through the formulation of development strategies,
development plans and industrial policies, a number of important area of investment
to guide the rational distribution of productive forces, optimizing industrial structure,
to maintain macroeconomic stability and overall economic balance.

(B) laissez- faire market competition would ultimately go their opposite - monopoly

Because the production costs determine the market price of the marginal production
costs to make Shichangzhuti 在 level of competition in our market Butong position,
and then some Chuyuyouli Xing Shi Dao Zhi's enterprise Zhu Jian
dominant. In order to obtain economies of scale at the same time, some market
players, often through joint, combined, the means of merger, forming a monopoly on
the market, leading to distortion of competition on the market. It can not play a
spontaneous and effective regulation and control functions, under the conditions of
perfect competition, "Pareto optimal" (Pareto Optimum) is to
optimize the allocation of resources, has become a purely hypothetical, it is
considered monopolistic market economy " Achilles problems. "
This requires that government act as a public person, the main competition in the
market to be the appropriate guidance, constraints, such as the development of
anti-trust or anti-trust laws, price controls, monopoly control of the degree. Western
developed countries in this regard the lessons learned over the centuries there for us to
learn. This is not a sound market order, the transition in the economic system also
comes with some traces of administrative monopoly in China, the Government is to
promote market development and the establishment of procedures for fair market
competition has a more important responsibility. This outstanding performance should
be based on institutional innovation in the government, establish and improve the
system of norms of fair competition and policy framework, increase enacted national
anti- monopoly law (recent Beijing and Shanghai, have successively developed a
group of local anti- monopoly regulations) and has been in force, "The
People's Republic of China Against Unfair Competition Law"
matched, to prevent possible and to prevent various forms has occurred a monopoly.
Reposted elsewhere in the Chinese papers Download Center (c)
easily lead to government intervention in the expansion of the size of government.
The government should take on the functions of market intervention in economic
activities, including the organization of the supply of public goods, the maintenance
of social and economic order, etc., the natural need to fulfill this function the
appropriate agencies and personnel. Adolf Wagner Berlin University proposed in the
19th century: the government in its very nature, have a natural tendency to expand,
particularly its intervention in economic activities of the public sector in number and
importance has a built- in widening, it is the Western economic circles as
"Wagner's law of increasing public activity." This
inner expansion of the government and the community to the growing demand for
public goods more corresponds, easily led to the expansion and strengthening the
functions of government intervention and its institutions and personnel growth,
thereby increasing the budget caused by the size and financial deficit, the high cost of
government intervention.

(D) government intervention for the rent-seeking behavior was offered the possibility.
Rent-seeking individuals or groups to fight for their own economic interests of the
government or government influence to help their fight for a redistribution of
unproductive activities (ie, no additional social wealth and welfare), such as enterprise
through legal particular form of illegal ex-gratia to the Government for concessions,
by seeking government intervention on the existing policy changes or other
concessions from the Government for political asylum, a market monopoly use of
scarce supplies. In this case, government officials in power is very likely
"be illegal to provide money or other compensation to lure, to make
beneficial owners has paid damages to provide the public and the public interest
act." Shows that rent-seeking possible because of government intervention
(government intervention known as the "rent the womb") is
invariably a result of excessive intervention and lack of such norms and oversight a
reality. The main hazard is that "not only improve the economic efficiency
of production operators to the momentum disappeared, but also easily cause the entire
economy in the resources consumed by rent-seeking activities and corruption and the
sectarian activities by increasing transaction costs in the economy." To
government intervention in the failure of an important source.

(E) government failure is also often due to government decision- making errors.
Government intervention in economic activities, is actually a ground cover, complex
decision- making process (or in public policy formulation and implementation
process). Correct decisions must be based on adequate and reliable information.
However, this information is scattered in many individual actors, and transfer between
the Government difficult to fully occupied, plus the activities of modern social market
economy, the complexity and variability, increased government control of information
and analysis of comprehensive treatment difficult. This situation can easily lead to
mistakes in government policy and the operation of the market economy is bound to
have irreversible negative effects. The right decision makers also need to have a very
high quality. Government macro-control, must be based on market operations of
accurate judgments, the development control policies, to take the necessary measures,
which in practice is quite difficult. Even if the judge accurately, and with the
appropriate policy instrument choice, the intensity is also difficult to determine in
advance. The lack of and intervention in pre-over, will result in
"government failure." But in reality, many government officials
do not have the quality and capacity of the decision, which will inevitab ly affect the
efficiency and effectiveness in advance.

Because of the existence of government intervention in the defect, so an alternative to
government intervention as the leading force in the market, which could only lead to
"government           failure",     with       "government
failure" to intervene "out of the market" must be
defeated by adding failure to further failure of market failure. However, the existence
of market failure objective need for the Government's active intervention,
"Night Watch" like "passive" market
failure the government also does not help, it will also result in government failure.
Therefore, the government does not interfere or intervene in excessive fatigue and the
Government in advance of the column were discarded. Realistic and reasonable
relationship between government and the market should be in ensuring that the market
plays a fundamental role in the allocation of resources under the premise of the
government's intervention to make up for market regulation of the short
length, the head of market regulation the same time have to overcome the government
intervention short, in order to achieve market regulation and government intervention
no mechanism for the optimal combination of two, namely, the respected economist,
the "convex combination." To this end, we need the government
to maximize the elimination of lead from the root of government failure to start, both
against the government failure to take effective measures (such as identifying with
Chinese characteristics, the economic functions of government Shuangxiang the
general concept of remodeling; from rationalizing government interests of justice to
guarantee that government intervention, detached; norms and behavior of the
functions of the Government in advance; to strengthen the supervision and conduct of
government regulation; improve the scientific level of government decision- making;
the bow team competition in certain areas of government regulation, etc.), in to
overcome and correct market failures, it must also complement the Government to
prevent and correct failures.