An Economic Analysis Of Government Failure And Its Redress Mechanisms

Modern market economy has been "mixed economy" which combines marketself-regulation with the government macroscopic control. The effective regulation by thegovernment can compensate for market imperfections. Once the intervention is improper, itcauses the phenomenon of government failure. The government problem is an eternal topicwhich concerns many disciplines such as economics, political science, sociology etc. In themiddle of20thcentury, the public choice school has launched a systematic analysis ofgovernment issues and made substantial research achievements. Their points of view about thephenomenon of government failure enlighten the people deeply. Since then, many economistshave been using the modern economic theory to analyze and research the phenomenon ofgovernment failure. It has become economics "Goldbach’s problem" that how to ensure thegovernment overcomes the market failure effectively while the market plays a basic role ofallocation of resources, especially to ensure that the intervention of the government’smacro-control will not cause the new failure or redresses the new failure effectively when itoccurs. In recent years, though many scholars have done extensive research on the problem ofgovernment failure but most of them analyzed the phenomenon using the public choice theoryas before and didn’t give people new inspirations in the changeable world environment andrapid development of the world economy. It cannot make the public have a comprehensiveunderstanding of government failure and inspire people to take effective measures to redressthe phenomenon. It is very useful not only for China but also for the rest of the world to analyzethe problem of government failure scientifically and reasonably using modern economic theory.The public thinks that government failure is intervention failed only when the governmentperforms its national functions. But in the era of economic globalization the phenomenon ofgovernment failure not only manifest between the government and the public but also amongthe government departments if the intergovernmental relations are incoordinate. More attentionshould be focused on the government failure among countries because of the insufficientinternational public goods in the age of globalization. With the rapid development of theeconomy the phenomenon of government failure is more complicated and various, which doesgreat damage to the sustainable rapid and healthy development of the national economy. There are many different and complex causes and reasons leading to the government failure, whichinclude the self-interest of the government market, lack of cost-benefit constraint mechanismand competition mechanism, limited government capacity, the special nature of public goodsand lack of high-quality guarantee system. In order to redress the phenomenon of governmentfailure, it is necessary to make the government intervene the market moderately, improve themarket competition mechanism of fiscal decentralization and government performanceevaluation mechanism, as well as contractual mechanisms and rational evolution mechanism,to enhance the professional ethics of civil servants and increase the supply of public goods.Only finding the best point of government regulation and the market self-regulation can weensure that the government overcomes the market failure effectively and make rapiddevelopment of the modern market economy. Firstly this thesis makes a comprehensiveanalysis of the phenomenon of government failure on the base of reviewing the previousresearch both abroad and in China. Secondly the thesis analyzes the complex reasons ofgovernment failure and discusses the way to redress the phenomenon. Finally the thesis drawsthe conclusions and makes expectations for the future research trends.