The Costs of State Intervention

John Deer 8310Image via Wikipedia

Market failure occurs when resource allocation through market processes results in inefficient outcomes. We have suggested that state intervention can result in superior outcomes in these circumstances. But it is important to remember that intervention has costs as well as benefits. Market failure provides a prima facie case for intervention, but intervention is not of positive net benefit unless the social costs of intervention are lower than the social efficiency gains arising from intervention.

Intervention can be very costly, both in financial terms and in broader measures of social cost. The costs of regulating European agriculture, for example, are immense. What can be said in conclusion is that intervention is likely to be desirable in some circumstances, but we must always be careful to estimate the gains and costs of intervention.

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