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TERRA ECONOMICUS

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  • Public choice with regard to merit goods: A case study of private bank deposits

Public choice with regard to merit goods: A case study of private bank deposits


TERRA ECONOMICUS, , Vol. 20 (no. 1),

This paper aims to extend Richard A. Musgrave’s concept of merit goods by introducing the notion of a quasi-merit good. By that, the author means a private commodity that acquires merit unjustifiably via a manipulated political process preceding public choice. It is argued that within the original concept of merit goods, specifics are left to public choice in each society. Public choice can, however, be affected by special interests or a misconception, opening the way to public financing for goods of questionable public merit. To illustrate the author’s theoretical claim, the paper brings up the case of private bank deposits. It is argued that bank stakeholders are the main beneficiaries of the uninterrupted supply of household savings. Exploiting the public desire for financial stability, bankers press for government intervention, mostly on paternalistic grounds, which are only partly justified. A government-backed deposit guarantee scheme nudges bank depositors to act in a manner beneficial for bank stakeholders, i.e., to keep supplying savings to banks. Private interests are pursued in the first place, which creates grounds for the claim that private bank deposits are a quasi-merit good rather than a genuine one. The proposed concept of quasimerit goods complements the theories of public finance and public choice and potentially applies to other goods and services.
Citation: Vernikov A. (2022). Public choice with regard to merit goods: A case study of private bank deposits. Terra Economicus 20(1): 38–51. DOI: 10.18522/2073-6606-2022-20-1-38-51
Acknowledgment: My thanks go to the conference participants at the HSE-University (Moscow), Southern Federal University (Rostov-on-Don), WINIR Conference on Institutions for Inclusive Societies (Lund, 2019), Society for Advancement of Socio-Economics (2019), Institute of Economics RAS (Moscow), Alexander Rubinstein, Timothy Spence, two anonymous reviewers, and the editor of Terra.


Keywords: theory of public finance; merit goods; Musgrave; interest groups; public choice; welfare state

JEL codes: B52, D18, D70, E44, G21, G28, H42

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Publisher: Southern Federal University
Founder: Southern Federal University
ISSN: 2073-6606