Market Failure in Unemployment Benefits

Topics: Unemployment, Unemployment benefits, Market failure Pages: 4 (1359 words) Published: December 6, 2012
Market Failure In Provision of Unemployment Benefit

Market failure occurs when resources aren’t used efficiently. This can be seen in any market, whether a publics good or a private good. Market failure can also be seen in the provision of unemployment benefits and unemployment insurance, as the resources could be used inefficiently and misused in different ways. For the purpose of this essay I will focus on how MORAL HAZZARD, prevents the efficiency in unemployment benefits and insurance, I will discuss the main issues to do with moral hazard in unemployment and also ways of combating it. I will do this by firstly defining market failure and the main components on it before leading to the actual topic of moral hazard. Market failure usually occurs when markets operating without government intervention, fail to deliver an efficient or optimal allocation of resources. This means economic and social welfare will not be maximised, leading to a loss of production efficiency. It can also be defined as the inability of an unregulated market to achieve efficiency in all circumstances. There are three types of situation in which market failures arises: 1.Provision of goods and services that we consume in common with everyone else 2. Production of goods where external costs or external benefits are present. 3. Restriction of output by monopolies and cartels.

Existence of Market failure is often used as a justification for the government to intervene. Government interferes with the economy to redistribute wealth and income. This redistribution is justified as a basis of some notion of equity or distributive justice. The public interest theory states that the government predicts that action will take place to eliminate waste and achieve efficient allocation of resources. The theory also states that when there is market failure government actions can be designed to eliminate the consequences of that failure to achieve allocative efficiency. Unemployment benefit...
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