Why should nation-state reforms and decentralization be encouraged?
The economic rationale: productive and allocative efficiency Economic theory provides the economic rationale for government intervention in market economies. They are “market failures”: the existence of public goods, externalities, asymmetric information, and monopoly. Besides, there might also be political as well as equity considerations. The theory of public goods explains one reason for possible government intervention in a market economy. The existence of goods and services with the properties of ‘non-exclusability’ and ‘non-rivalry’, which cannot be provided efficiently by market mechanisms alone. A wide range of goods and services also create ‘externalities’, i.e. benefits or costs to people who are not directly involved in their production and consumption. Therefore, public regulatory procedures concerned with controlling the sources and/or consequences of these externalities are needed. Another form of ‘market failure’ is asymmetric information. This occurs when one party to a
