I've read and seen some really thought-provoking material on ways in which the free market could supposedly do a lot of traditional government roles. There are also sites like judge.me which are testing some of it out, including private contract enforcement and law. So I wouldn't automatically say that government is better at certain things.

What kind of perverse incentives are you concerned with? There is certainly some incentive to do things like using force and deception to get money or resources, but the market also includes a mechanism for punishing this and disincentivizing that type of behavior, and I'd say the same incentive exists in governments.