The Desired Outcomes Of Government Intervention

• Government intervention?is not always effective. Two of the main reasons for this are the existence of?regulatory capture & asymmetric information

Regulatory Capture

• Regulatory capture?occurs when firms?influence the regulators?to?change their decisions/policies?to align more with the?interests of the firm
  • Firms spend millions?lobbying?regulators directly - or in many cases lobbying politicians who can issue instructions to the regulators e.g in 2021 the former UK Prime Minister, David Cameron, was caught in an embarrassing case of lobbying for a failed financial venture by a firm called Greensill Capital
• Some lobbying activity is corrupt?& there is a fine line between influencing activity & bribing. The UK Government has an agenda to improve the?transparency?of any lobbying activity
• Naturally,?regulatory capture?can completely prevent fair outcomes in the markets concerned

Asymmetric Information

• Often governments believe they are?making the best decision?in order to meet their aims
• Many times it is not the best decision due to the fact that the government or regulators either?do not have the full & relevant information?- or they?do not understand the market?they are trying to regulate e.g. many financial markets are fast moving & incredibly complex
• This existence of?asymmetric information?has been responsible for some spectacular?government failures