An alternative way to model merit good arguments



∂Zuh (z,x,y) yhμ (i = 2,3) and the adding up condition d-+qχ ∂χh+qydyh = -xh,
this expression can be rewritten as

∂W ' X λhugh{
xh


xh


∂xh du2ι (z,χ,y) h ∂yh
∂ qx ∂ z y μ ∂ qx


u2(z,x,y) κ I I

u1 d z—y y μ ∣.

(26)


Multiplying through by qx , and turning derivatives into elasticities, we finally


get

- dW ` X λhegh ½ a xh - Uhh μh δh qxx + εh 1 + δh qyy ^∩ ¾   (27)

qx ∂t  ' / v λ u1 ^qxx μy  ^εxxδxz zh  + εyx  1 + δyz zh j J'  (27)

where the Marshallian price elasticities and the demand price elasticities are
defined as

h = χh qx hh = ∂yh qx δh = du1 z δh

xx    ∂qx xh, yx ∂qx yh, xz ∂z V2 , yz


u3 z
u1 z


∂z u3 .
u1


(28)


Similar operations lead to an analogue expression for qy ∂∂W :

ι+δhzyh]) }■  (29)


-qy dwW ` X λhu,9gh {''"∙' yh - μyh (εhy δhz qzχ^+εhy

with similar definitions for εhxy and εyhy. Notice how the existence of a (de)merit
good argument corrects both MC expressions in a similar way.

Writing μyh = ηqyyh, the curly bracket terms can in principle be calculated
using expenditure data (expenditures on
x and on y, and expenditures on x and
y relative to z ) and uncompensated price and quantity elasticities. If these elas-
ticities are not available at the household (or income decile) level, they can as
an approximation be replaced by the aggregate elasticities. One can then pro-
duce different rankings of the marginal costs, for different values of the (de)merit
parameter
η .

7 Discussion and concluding remarks

In this paper, I have questioned the scaling approach proposed by Besley (1988)
to model merit good arguments on the ground that it often leads to counterin-
tuitive policy prescriptions. I have proposed a different approach which directly
interferes with the marginal willingness to pay for a (de)merit good.

Which approach to choose? If one is convinced that a (de)merit good argu-
ment should at least in a first best world precribe the subsidisation (taxation)
of that good, then the approach presented here meets this criterion better than

10



More intriguing information

1. The Folklore of Sorting Algorithms
2. The name is absent
3. Biological Control of Giant Reed (Arundo donax): Economic Aspects
4. Response speeds of direct and securitized real estate to shocks in the fundamentals
5. The name is absent
6. The name is absent
7. The name is absent
8. The English Examining Boards: Their route from independence to government outsourcing agencies
9. The name is absent
10. Cross-Country Evidence on the Link between the Level of Infrastructure and Capital Inflows
11. The name is absent
12. DETERMINANTS OF FOOD AWAY FROM HOME AMONG AFRICAN-AMERICANS
13. A Duality Approach to Testing the Economic Behaviour of Dairy-Marketing Co-operatives: The Case of Ireland
14. Skill and work experience in the European knowledge economy
15. FASTER TRAINING IN NONLINEAR ICA USING MISEP
16. The name is absent
17. The name is absent
18. The name is absent
19. The name is absent
20. Handling the measurement error problem by means of panel data: Moment methods applied on firm data