The Evaluation of Public Policy: Normative Economic Theories of Government Failure

Abstract

Conventional economic analysis of public policy has been traditionally conducted in the conceptual context of the theory of market failure. The resultant analytical framework enabled analysts to assess the economic efficiency of market outcomes, and prescribe appropriate government intervention where necessary. No corresponding theoretical structure existed to facilitate an equivalent investigation into the economic efficiency of nonmarket outcomes. However, quite distinct from public choice theory, a normative theory of government failure has emerged to form a conceptual analogue to the market failure paradigm. At present this embryonic theory of government failure has three strands: Wolf’s theory of nonmarket failure, Le Grand’s theory of government failure, and Vining and Weimer’s theory of government production failure. The present paper evaluates the extent to which this seminal literature can assist in the design of rational public policy processes.