The selection principle and market failure in systems competition

If governments stepped in where markets failed, reintroducing markets through the backdoor of systems competition will again result in marl:et failure. Three models are presented which illustrate this wisdom. The first is concerned with congestion-prone public goods and shows that fiscal competition may be ruinous for the governments. The second considers the insurance function of redistributive taxation and shows that systems competition may suffer from adverse selection. The third studies the role of quality regulation and shows that systems competition may be a competition of laxity resulting in inefficiently low quality standards. (C) 1997 Elsevier Science S.A.