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Theoretical and Applied Economics
No. 2 / 2019 (619), Summer

Government failure vs. Market failure. The implications of incomplete information

Rareș Petru MIHALACHE
The University of Manchester, The United Kingdom
Dumitru Alexandru BODISLAV
Bucharest University of Economic Studies, Romania

Abstract. There are many situations from the economic, social, personal fields when an individual feels the need to take a decision, sometimes under uncertainty or in risky situations and adding the imperfect information, these can yield to wrong decisions and mainly, some individuals can incur additional costs.

Moreover, it is very important that these circumstances -when one part can have more information than the other one- can be managed because the problems regarding moral hazard and adverse selection can worse off the part with less information. Furthermore, the lack of information plays an important role in both market (externalities, information asymmetry) and government intervention contexts (some group of individuals have more information than the others).

Nevertheless, starting from these extremely important ideas, this paper seeks to treat this subject in a comprehensive manner and to provide the reader a general overview about these topics.

Keywords: government failure, market failure, information asymmetry, moral hazard, adverse selection.

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