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The Role of Government in a Liberal Market Economy: A Double-Edge Sword

The Role of Government in a Liberal Market Economy: A Double-Edge Sword
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Author(s): Claude Joseph (Long Island University, USA)
Copyright: 2018
Pages: 9
Source title: Positioning Markets and Governments in Public Management
Source Author(s)/Editor(s): Helisse Levine (Long Island University, USA)and Karina Moreno (Long Island University, USA)
DOI: 10.4018/978-1-5225-4177-6.ch005

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Abstract

This essay is a critical assessment of the market failure theory and public choice theory. While the market failure theory provides a justification for government intervention in the economy, the public choice theorists are very skeptical about the role of government as a corrector of market failures. Since government failures can be worse than market failures, the imperfections in the market process, they argue, do not necessarily call for government intervention. These two theoretical perspectives, notwithstanding their difference, do share something in common. Both assume that individuals are self-interested. This essay contends that a shift from rational self-interested behavior to bounded-rational behavior provides a less contested role for the government. With bounded-rational behavior, the state should no longer be viewed as a mere surrogate of the market, but as “a choice architect,” “an entrepreneur,” and “a manager of conflict.”

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