3.1.2—Merit and demerit goods

Merit goods may be under-consumed and demerit goods over-consumed when consumers lack relevant information about benefits or harms. Policy aims to narrow the gap between private choices and social welfare.

Information campaigns, subsidies, taxes, regulation and direct provision can be combined. Each has costs, enforcement issues and possible unintended effects.

Subsidised vaccinations and clear risk information can raise uptake; excise taxes and age restrictions can reduce tobacco consumption, but neither guarantees the exact efficient quantity.

Policy should not be justified by labelling a good “good” or “bad” alone; identify the information failure and predicted response.