Economists and the Analysis of Government Failure: Fallacies in the Chicago and Virginia Interpretations of Cambridge Welfare Economics

Abstract

The theory of government failure was developed as a reaction against Pigovian welfare economics and the Cambridge approach to economic policy analysis generally, which ostensibly lacked a theory of governmental behavior. We argue that the Cambridge tradition — as reflected in the writings of Henry Sidgwick, Alfred Marshall, and A.C. Pigou — evidences a clear sense for the potential limitations and inefficiencies of the political process that were later developed, albeit in more systematic fashion, in the government failure literature and at the same time bring out the ways in which the Cambridge and contemporary government failure approaches diverge, in spite of their strong similarities.