Merit goods, rival good, consumer sovereignty, paternalism, government intervention, libertarian Paternalism
A merit good is a commodity that is considered meritorious enough to be provided by the national budget as it serves the common good of the population. Some economists believe that society should be provided with merit goods through public financing because they are necessity goods and benefit all. They believe this because markets are subject to failures that lead to the inefficient production and consumption of these goods. However, government intervention is not supported by all. This disagreement gives rise to controversial debates about consumer sovereignty and government paternalism.
[...] Social Policy Section. Research paper no 2010-11. Online at: https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliament ary_Library/pubs/rp/rp1011/11rp08 E. Balbekova Inefficiency of State-Owned Enterprises. ISSCAD, Peking University. Academia. [...]
[...] Governments therefore feel the need to intervene in the market to prevent under-consumption and supply of merit goods by implementing certain policy. This brings about principal-agent problems where the government (policy-makers) are able to make decisions and take action on behalf of the individuals in society. This is a possible violation of consumer sovereignty where consumers have some control over market supply and the judgment of their own welfare. There are three possible paternalistic measures for the provision of merit goods; strong (hard), medium and soft (libertarian) paternalism. [...]
[...] The question being if this mindset could be extrapolated to government intervention and provision in other areas such as education, retirement savings and healthcare. For example public provision of vaccines against disease will benefit people directly so that they become immune but also provides an external benefit to society who therefore face less risk of catching the disease from those people that have been vaccinated. It is, however, sometimes controversial to try identify the limit to government intervention where consumer choice is compromised and the intervention is maybe not in best interest of the consumer. [...]
[...] It is also difficult for policy makers to decide on a fair price for public goods and services. Providing merit goods for free may result in over-consumption and consequently the decrease in the quality of supply and the occurrence of free rider problems (Balbekova, 2020). Conclusion Paternalism by the government is somewhat inevitable since the government is naturally in charge of the provision of many goods and services. However there exists degrees to paternalism. Government must decide to what extent and how it wants to influence the decisions of society but must also consider the limits to interference with private markets and consumer liberty. [...]
[...] There is evidence of this from dynamic inconsistency observed in savings behaviour where consumers only consider their short run situation and don't save enough for the future. Another argument is that there is often no alternative to paternalism because policy makers have to make choices when it comes to things like employee savings plans. The third is that there are design options for planners. State owned enterprises Government provision of merit goods also brings about the argument of efficiency. Economic theory explains that firms in a competitive market strive to achieve efficient production and are incentivised to innovate due to competitive forces. [...]
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