government functions

The most basic function of government is to provide a framework of law and order. Government can take account of costs and benefits that market can not do.

The costs of corruption are not limited to the bribes collected, since scarce resources have alternative uses, the real costs are the foregone alternatives---delayed or aborted economic activity, the lost opportunity and wealth.

It is not just corruption but also sheer bureaucracy which can stifle economic activity. A survey by the World Bank found that the number of days required to start a new business ranged from less than 10 in Singapore to 155 days in Congo.

One of the major advantages that enabled Britain to become the first industrialized nation was the dependability the laws.

Framework of dependable laws has encouraged both domestic and foreign investment, as well as attracting immigrants with skills lacking locally.


A dependable law should prevent some people from interfering with other people.

The costs if additional security devices inside and outside of stores as well as security guards in some places, all add to the costs of doing business and are reflected in the high prices of goods and services purchased by people in high-crime areas.

In a country without property rights, there is no given individual with sufficient incentives to ensure the quality and maintenance of the goods.

Property rights crate self-monitoring.

The only animals threatened with extinction are those not owned by anybody.

Some costs are called "external costs" because such costs fall outside the parties to the transaction which creates these costs. There are things that government can do more efficiently than individuals because external costs(pollution), external benefits(mud flap, good old building), or indivisibilities(national defense) make individual decisions, based on individual interests, a less effective way of weighting costs and benefits to the whole society.

But sometimes people will spontaneously organize themselves to deal with external costs or external benefits.

Under popularly elected government, the political incentives are to do what is popular, even if the consequences are worse than the consequences of doing nothing, or doing something that is less popular. Political time horizon tends to be much shorter than economic time horizons.