decisions are made. By narrowing the range of things that must be
determined by informal judgment, cost-benefit analysis can still play a
useful role.
In this chapter, we have been working toward a cost-benefit analysis of
government intervention. We have made a general case against
government intervention, stressing that free markets are great
economizers on information and coordination costs. We have also made a
general case for government intervention, emphasizing that free markets
fail to produce allocative efficiency when there are firms with market
power, public goods, externalities, or information asymmetries, and may
also fail to achieve broader social goals. We now turn to the more specific
issues of how governments intervene, the costs of government
intervention, and why government intervention sometimes fails to
improve on imperfect market outcomes.
The Tools of Government Intervention
The legal power of Canadian governments to intervene in the workings of
the economy is limited by the Charter of Rights and Freedoms (as
interpreted by the courts), the willingness of Parliament and provincial
legislatures to pass laws, and the willingness and ability of the police and
courts to enforce them. There are numerous ways in which one or
another level of government can alter the workings of the unrestricted
market economy.