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Government Failure: Congestion, Pollution and the Pensions Crisis - Activity

When, how and why should the government intervene in a market? Many economists feel that governments are all too ready to correct apparent market failure by intervening in markets to correct the perceived failure - only to make matters worse by doing so or by creating other problems which could be seen as being more serious than the original problem!

The aim of this Activity is to investigate some cases where governments intervene, to identify the nature of the market failure and the problems a government might face in 'solving' the problems.

Consider the following problems:

Road congestion is increasing in most towns and cities and on motorways

An increase in the number of vehicles on roads, the increase in the number of people learning to drive and the ageing population all lead to an increase in congestion. Should it be reduced and if so, has the government a role to play?

Night driving

Image copyright: Christian Sommer, stock xchng


River pollution is found to be rising at levels above acceptable limits, especially in areas near to urban conurbations

Why do people pollute rivers and what could be done to solve the problem? In whose interest is it to see such problems resolved and what power do they have to influence the decision-making process?

River pollution

Title: Landscapes of Industry and Pollution. Copyright: Getty Images, available from Education Image Gallery


The number of people unlikely to have pension provision in the future is increasing

Pensioners exercising

Title: German Political Parties Haggle Over Pension Reform. Copyright: Getty Images, available from Education Image Gallery


Tasks:

  1. In each case, identify the nature of the market failure - why are these problems arising?
  2. Identify potential measures the government might use to intervene in the market to correct the perceived failure. There may need to be a variety of solutions used, each of which contributes in some way to the solution.
  3. Refer to the information on 'rent seeking' and 'log-rolling' in the presentation. What relevance have these concepts got to the problems identified? Who might the special interest groups be who might seek to gain benefits at the expense of others?
  4. How might the government measure the effect of the intervention strategies you have identified in question 2 above? What problems might they face in gaining an accurate measure of such effects?
  5. Choose ONE of the problems you have investigated and produce a 750-word report summarising the problem, the solutions and the likely outcomes of the solutions on correcting the market failure.