Mind-Maps for Market Failure, Perfect Competition, and Government Failure

It’s mid-term essay time for many students, including mine in the Johns Hopkins University Aitchison Public Service program.

Their assignment is to (in groups of two) write a 1,500 to 2,000 word memo and craft an in-class presentation to a specific policymaker (senator, regulator, head of state). The memo and presentation must:

1. pick a proposed policy intervention (e.g. “Should the government impose steel tariffs?”),
2. define the key terms (e.g. “what is a tariff”?),
3. provide the previous background of policy interventions in this space,
4. identify and explain the market failure this intervention aims to address (i.e. identify whether there is a legitimate aim under a neo-classical framework),
5. identify and explain possible government failures that might frustrate accomplishing of the aim (i.e. is the intervention a suitable way of accomplishing the aim),
6. identify and explain alternative policy interventions that might (to a greater or lesser extent, at a greater or lower cost) fulfill the same aim, and
7. make a recommendation as to whether, on balance, the intervention is worthwhile, and what steps might be taken to mitigate #5 or incorporate advantages of #6. (Attentive observers will note that this assignment bears a passing resemblance to proportionality analysis under EU law.)

I wanted to give them a study aide that would help them think about different causes, consequences, and possible solutions to market failure: under what circumstances would neo-classical economists see government intervention in private markets as warranted? Not finding the ideal mind-map or guide out there, I attempted to make one of my own:

Of course, these conceptualizations of market failure only make sense in comparison with the assumption of perfect competition, where market failure is impossible.

Finally, even if market failure in theory could justify government intervention, there are reasons to be worried about government failure, including:

These mind maps are very much a work in progress, and I invite recommendations and critiques, here or on Twitter @toddntucker.