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Market Failures, Government Failures and the Welfare of Poor People

February 8, 2018

DECRG Kuala Lumpur Seminar Series

  • Development projects and policies were initially aimed at correcting market failures: bridges and power plants provided public goods; import tariffs protected infant industries; free, publicly provided health and education services captured the externalities associated with human capital. Yet, these projects and policies created a set of “government failures.”  Thanks to free or subsidized power and water, Africa’s infrastructure suffered from inadequate maintenance and corruption. The Middle East was rapidly running out of water. Protection generated monopolies that undermined employment and exports. While access increased, the quality of health and education services in India was extremely poor, partly due to high absentee rates among doctors and teachers.

    But government failures are much harder to correct because they are the result of a political equilibrium.  Free or subsidized water and electricity enable politicians, who allocate the subsidy to the utilities, to ensure that these services go to people who vote for them. Protected industries are sometimes owned by members of the President’s family. In parts of India, teachers run the political campaigns of the local politicians. Standard approaches, such as advising governments about reform, are unlikely to dislodge these political equilibria.  However, in light of the increase in competitive elections at national and local levels, and recent research on how information and transparency promote citizen engagement, informing the public—especially poor people—could enable them to hold politicians accountable and get what is their due.

    Download the paper: N/A

    Watch and join usSeminar will be livestreamed, allowing for online audience participation (only available during the seminar) 

  • Shanta Devarajan

    Shanta Devarajan is the Senior Director for Development Economics (DEC) at the World Bank. Previously, he was the Chief Economist of the World Bank’s Middle East and North Africa Region. Since joining the World Bank in 1991, he has been a Principal Economist and Research Manager for Public Economics in the Development Research Group, and the Chief Economist of the Human Development Network, the South Asia Region and Africa Region. He was a director of the World Development Report 2004, Making Services Work for Poor People. Before 1991, he was on the faculty of Harvard University’s John F. Kennedy School of Government. A member of the Overseas Development Institute’s Board of Trustees, and the author or co-author of more than 100 publications, Mr. Devarajan’s research covers public economics, trade policy, natural resources and the environment, and general equilibrium modeling of developing countries. Born in Sri Lanka, Mr. Devarajan received his B.A. in mathematics from Princeton University and his Ph.D. in economics from the University of California, Berkeley.


  • WHEN: Thursday, February 8, 2018; 12:30-2:00PM
  • WHERE: World Bank Malaysia Office, Level 3, Sasana Kijang, No. 2, Jalan Dato’ Onn
  • RSVP: Kindly RSVP by Wednesday, February 7, 2018