The Normative Problem of Merit Goods in Perspective

Abstract

In his Theory of Public Finance (1959), Musgrave invented the concept of merit wants to describe public wants that are satisfied by goods provided by the government in violation of the principle of consumer sovereignty. Starting from Musgrave’s mature discussion (1987), I construct two categories to classify the explanations of merit goods. The first strand of thought attempts to justify merit goods within New welfare economics, by modifying its assumptions to accommodate irrationality, uncertainty, lack of information, and psychic externalities. The second category encompasses more radical departures from consumer sovereignty, drawn from philosophical critiques of economics. In the third part of the paper, I argue that the two strands might be represented by a non-individualistic social welfare function. I also show how this solution echoes Musgrave’s (1937) early views on public expenditures before he coined the concept of merit wants. From an historical perspective, the survival of the concept highlights the persistence of a social point of view in welfare economics.

Keywords: merit wants, merit goods, Richard A. Musgrave, consumer sovereignty

JEL Classification: H40, B29, B40, A13