BRUNO S. FREY AND JOSEPH E. STIGLITZ ABOUT GOVERNMENT FAILURE AND MARKET FAILURE

Abstract

One of the most fascinating economic issue is effectiveness of operating of resources allocation mechanisms. During 250 years, mercantilists were favouring a nation, later Adam Smith convincingly substantiated, that only market mechanism enables nations to achieve prosperity, however John Maynard Keynes postulated ‒ during the Great Depression ‒ a state intervention in economy. New more sublime arguments have appeared at issue of market failure and government failure. Several years ago, Joseph E. Stiglitz and Bruno S. Frey suggested an interesting solution to this problem. They maintain that it disappoints government, as well as market. J.E. Stiglitz claims that the state should intervene only in cases when it has possibility to reduce market failure. He postulates government and market co-operation, what can result in their reinforcement and effective solutions for social problems. Whereas, B.S. Frey notices that only a powerful nation is able to make rules for an economic game, which enable private markets to operate well. Each time, comparative analysis of costs and profits of market and state operating should make a decision which resources allocation mechanisms to choose.