The aim of this chapter is to examine the theory and practice of government intervention in the tourism industry to correct for market failure. Having reviewed the significance of small firms, the first part deals with issues relating to investment strategy and then goes on to look at the principal instruments for implementation, namely investment incentives. But its is argued later that the myriad of small and micro-businesses, which dominate the sector, are faced with so many other difficulties that investment incentives alone are likely, inmany instances, to be insufficient to guarantee success.What is required is amulti-tasking approach and the practicalities of this are discussed under four headings: structuring small business finance; upgrading standards; improving communications channels; and raising the level of market intelligence.