Wilfred Dolfsma is Professor of Innovation in the School of Economics and Business at the University of Groningen. This paper was presented at the 2010 ASSA meetings. The author thanks participants in the session, as well as an anonymous reviewer and the editor of this journal for helpful and stimulating comments. 593 ©2011, Journal of Economic Issues / Association for Evolutionary Economics JOURNAL OF ECONOMIC ISSUES Vol. XLV No. 3 September 2011 DOI 10.2753/JEI0021-3624450304 Government Failure — Four Types Wilfred Dolfsma Abstract: Economists tend to see the market as a default option for social order and a role for government only when markets fail. Developing a convincing analysis of the role of government in economic processes, however, needs to start by considering government failure in its own terms. Drawing on insights from institutional economics, law and economics and the philosophy of law, emphasizing the necessity of rules for the economy, this paper develops the concept of government failure. The paper identifies and develops four different types of government failure. Government can set rules for economic processes and actors that are (1) too specific, (2) too broad, (3) that are arbitrary, or (4) that conflict with other rules it has set out to address other, related issues (possibly primarily non- economic). Government failure is illustrated in the context of Intellectual Property Right (IPR) law as it relates to Anti-Trust law. Keywords: anti-trust law, government, government failure, intellectual property rights, rules in the economy JEL Classification Codes: K0, H10, P16 “1. We regard the state as an agency whose positive assistance is one of the indispensible conditions of human progress.” 1 The way in which economists have looked at the state and its effects on the economy has fluctuated substantially over time (Medema 2003). In contrast to what the first substantial article in the first constitution of the American Economic Association holds, governments are now largely seen as affecting the workings of an economy negatively if and when they do more than a “Night-watch state” would. Nowadays,