These people, these government bureaucrats, carry out the policies and programs according to specific rules and procedures. These rules are the good and bad of bureaucracies. The good is that they enable the implementation of policies and programs in an orderly fashion, not guided by the capricious whims of government workers. The bad is that they prevent workers from assuming personal responsibility, preventing the incentives that are essential for an efficient allocation of resources.

Following Orders

Most major corporations are structured as complex bureaucracies. So too are large, nonprofit charities. However, because the public sector tends to have the largest bureaucracies, government bureaucracies tend to get the most notoriety. Moreover, while bureaucracies are a prime source of public sector inefficiency, they also contribute to inefficiency that exists in private sector.

Inherently Inefficient

• Responsibility: At the top of the list is the assignment of responsibility to those working in a bureaucracy. In a complex organization, whether public or private, individuals can avoid personal responsibility for their actions. They can blame the rules. They can blame others.


• Management: As the size and complexity of an organization increases, the ability to exert control decreases. The "head" of a one-person organization has complete control over that "one person." The "one person" carries out the dictates of the "head" without error. However, the head of a one-thousand person organization cannot exert the same degree of control over all members.


• Information: Part of the management problems arise due to imperfect information. As the dictates of the head are passed down through the organizational structure, the information is bound to be misunderstood. The head might want 5 copies of a 100 page report and end up with 500 boxes of paper clips.

Maximizing Utility

A Special Interest

In particular, the continued existence of a government bureaucracy is dependent on the amount of tax dollars appropriated. A government bureaucracy, as such, is motivated to act just like any private special interest group. Its members are bound to take every action legally allowed (and perhaps some that are not) to convince political leaders to support their organization. This is yet another ingredient in the recipe for inefficiency.

Other Sources of Government Failure

• Politicians: These are members of society who seek elected offices. Problems and inefficiencies arise because politicians, like all human beings, seek to maximize their own utility. This pursuit can and does conflict with doing what's best for the economy.


• Voters: People, citizens of a nation, also seek to maximize their own utility. Two rational choices they make in this pursuit are to NOT be informed (rational ignorance) and to NOT participate in the political process (rational abstention). Such "apathy" means that elected leaders can ignore their preferences.


• Interest Groups: While some people have little or no involvement in the political process, others have a great deal of involvement. These people, who also seek to maximize utility, have more to gain or lose from particular government actions and are thus motivated to act accordingly, usually by forming special interest groups.