Money, Banks and Finance in Economic Thought

Reconciling Merit Wants with Consumer Sovereignty: A Critical Assessment of Rationality Axioms

Pittrich Lara, University of Graz

The concept of merit wants has endured a marginal and problematic existence within mainstream economic theory since its introduction in 1957. Richard Musgrave initially defined merit wants as a residual concept to refer to individual preferences which are overruled by the government as the consumption of certain goods is considered insufficient. This was motivated by the factual existence of substantial in-kind transfers in many Western democracies. The subsequent reactions in the literature were mainly dismissive and claimed that the novel concept was either redundant or normatively void. The lack of a clear definition, piecemeal justification and ambiguity surrounding the concept of consumer sovereignty may in part explain this hostile reception. In this paper, I discuss some limitations of standard rationality axioms and the concomitant need to broaden the concept of consumer sovereignty. This would allow for a reassessment of the legitimacy of merit wants within economic theory and the possibility of reconciliation within a more encompassing individualistic framework. I first retrace the historical development and subsequent reception of the concept of merit wants, followed by a critique of revealed preference theory and rationality axioms defined over preferences and choices. It is argued that rationality axioms need to be suitably modified in order to allow for a more encompassing characterization of individual rationality. This could facilitate the introduction of merit wants into economic theory.

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Keywords: Merit wants; consumer sovereignty; revealed preference theory; rationality axioms;

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