Federal disaster relief may encourage developers and homeowners to build in flood plains, to use non-stormproof materials, or to fail to purchase adequate insurance. Here again, private relief efforts can be targeted more rationally and do not generally have the same effects. Overdevelopment of disaster-prone areas (such as beach-front and flood-plain properties) has also been spurred to dangerous levels by government subsidies to disaster-insurance funds.

As the "risky" behavior rises in response to each automatic bail-out or entitlement program, an additional consequence is that the costs of such programs tend to spiral far beyond their originally projected budgets. Those overruns have reached catastrophic proportions in at least one case—namely, the notorious bail-outs of the savings-and-loan industry.

Additional problems are created by price subsidies, which seek to keep the prices of particular goods artificially low. Such policies, of course, are typically targeted toward domestic rather than world markets, since suppressing world-market prices is prohibitively expensive. Because of the resulting disparity between domestic and world prices, it becomes necessary to impose import/export controls, prompting the growth of extremely profitable black markets and organized crime. Such subsidies and controls have given rise to widespread smuggling and governmental corruption in post-communist Russia.

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