Market failure and government failure in the real estate market
In a market where consumers and producers compete freely, the market price is determined by the principle of supply and demand. These market prices play a role in efficiently allocating scarce resources in economic life. Economists have proven that efficiency is assured when an ideal form of a perfectly competitive market with difficult and difficult conditions is established. However, although it may be due to difficult conditions, resource allocation in the market is not always efficient. In some cases, goods and services are produced less than consumers want, and vice versa. At this time, being produced less means that scarce resources are not sufficiently distributed where necessary, and being produced more means that scarce resources are wasted unnecessarily. Such a phenomenon in which resource allocation by price is not efficient in the market is called ‘market failure.’ The causes of market failure include imperfect competition, public goods, externalities, and information asymmetry.
Perhaps because of the word market failure, we can often see people use the word market failure for all the problems that arise in the market economy. However, at least from an economics point of view, the word market failure is used very limitedly. Market failure does not include any meaning other than the inability to efficiently allocate resources by price. On the other hand, government failure refers to a phenomenon in which government intervention in the market leads to inefficient allocation of resources. It is a concept that is symmetric with market failure. Government failure was first used by C. Wolf as the term non-market failure, and the cause of government failure was based on the demand side of government intervention and the supply side of government intervention that caused excessive demand. I divided and explained. A common cause of government failure is a combination of supply and demand.
More fatal than the original market failure is the government failure. If the reason for the market failure theory was to find and solve factors that distort rational resource allocation, government risks are already in the core factors. In addition, if the government strengthens market intervention for one reason or another and touches the market with a knife that is difficult to handle under the name of publicity, the government’s failure is expected. The government, which was born as a result of politics, has a strong insider logic of the political power to think about elections, and therefore chooses only the information it wants rather than accepting information in a balanced way. It can seriously distort the allocation of resources by conducting state projects in a way that gives preferential treatment to the regime’s supporters. Law amendments related to real estate are a typical example.
This paper examines the effect of government failure on market failure, focusing on real estate market legal policies.