Reconsidering merit goods

What is a merit good? There has been an interesting exchange of views on the TES forum this week prompted by this post

“A merit good usually, but not always, yields postive externalities when consumed”

When would positive externalities NOT be yielded?

My own AS Economics study companion has this definition

Merit goods are those goods and services that the government feels that people will under-consume, and which ought to be subsidised or perhaps provided free at the point of use so that consumption does not depend primarily on the ability to pay for the good or service. Consumption of merit goods is believed to generate positive externalities- where the social benefit from consumption exceeds the private benefit. A merit good is a product that society values and judges that everyone should have regardless of whether an individual wants them. In this sense, the government (or state) is acting paternally in providing merit goods and services. They believe that individuals may not act in their own best interest in part because of imperfect information about the benefits that can be derived. Good examples of merit goods include health services, education, work training programmes, public libraries, Citizen’s Advice Bureaux and inoculations for children and students.

Notice here that we are talking about the sorts of goods and services that society judges to be in our best welfare. Judgements involve subjective opinions – and we cannot escape from making some valued judgements when we are analysing and discussing merit goods.

Red wellies came up with this thought-provoking post

“A merit good usually, but not always, yields postive externalities when consumed”

The key words here are ‘when consumed’. More advanced theory differentiates between externalities of consumption and production. Fair trade / organic bananas are an example. They carry positive externalities associated with production, but their consumption generates no positive externalities over say conventionally produced bananas (unless you argue that organic is ‘better’ for you, although this claim is widely disputed).

And Chris-osl warmed to the theme

Supply of gym equipment. In producing such equipment I pollute the atmosphere.
You ‘consume’ (use) the equipment and become fit and healthy etc.
So…a merit good that yields negative externalities in production and positive externalities in consumption.

Any more examples out there?

It has certainly made me reconsider the idea of merit goods ahead of teaching it in a few days time.