Use of public finance to provide merit goods

There are goods that cannot be entrusted to the profit-chasing private markets because these markets would fail to provide the goods in the desired quantities. Private markets are incapable of satisfactorily providing services such as education and health care. These crucial goods are classified as merit goods (Auld 1975) because “benefits accrue to others over and above the direct recipients of education and health”.

The benefits of comprehensive health and education services might not be appreciated by the private markets and might therefore fail to be supplied in the right measures. Government intervention in such markets is therefore desirable to bring a balance and probably set standards. Government provision of these crucial merit goods, though exemplary, could benefit much from co-operation with private markets. Owing to their desire for profits, private markets tend to create centers of excellence.

Government institutions on the other hand suffer from inefficiencies caused by bureaucracy and in they could learn much from studying and learning from the private sector.


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