This post is covers both market failure and government failure. Andrew Samwick, an economist at Darthmouth, discusses how NYC is banning Trans fatty foods (like French Fries). He discusses the tradeable permit to pollute system we discussed in class in a joking way here
Of course, this is probably closer to an example of government failure that it is market failure. Do we really think that taxpayer money is best spent....banning French Fries? What about all the jobs that will be lost in the restaurants whose food now tastes like manna?