Market Failure and Government Failure

Aaron Levine suggests that income distribution, risk management and product-pricing problems warrant government intervention. It is important to use a comparative-institutions approach in assessing the effects of government action designed to correct such 'failures' of the market. The relevant comparison is between the outcomes of real-world markets and the results when government intervenes, taking into account the information and incentive problems that plague the collective choice process.

If the state acts to correct the 'market failures' in the situation identified by Levine, the government creates problems that may be worse than the problems that existed before the government intervened.