No. 360 · Fixing problems · Systems
Government Failure
Government action meant to fix a problem can leave things worse than doing nothing.
In the Almanac
“Prohibition”, 1920–1933 · “San Francisco’s rent control”, 1994
Both stories in full, three ways to use it and where it misleads.
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Questions
What is Government Failure?
Government Failure, or non-market failure, is the counterpart to market failure: intervention that ends up allocating resources less efficiently than before. Rooted in public choice theory, it shows how good intentions can backfire, as when rent control reduces housing investment and supply.
How do you use Government Failure?
When evaluating a policy, look beyond its intended benefits to its likely side effects and incentives, and ask whether government is the best actor for the problem. As a leader, apply the same lesson: interventions in complex systems can create consequences you never planned for.
When does Government Failure matter?
Government Failure is one of the 40 mental models for fixing problems, the situations where you ask: Why does this keep going wrong, and how do I fix it for good? Within that, it belongs to “Rewards and rules”, alongside Cap and Trade, Coase Theorem and Goodhart’s Law.
What is an example of Government Failure?
Two stories show it at work: Prohibition (1920–1933) and San Francisco’s rent control (1994). Both are told in full in The Mental Models Daily Almanac, which has two stories for each of its 365 models.
Which mental models are related to Government Failure?
Market Failure, Regulatory Capture and Cobra Effect. Government Failure itself comes from systems.