Quasi-Merit Goods : The Concept and a Case Study of Private Bank Deposits

Drawing on the merit goods concept developed by Richard A. Musgrave, this paper introduces the notion of quasi-merit goods. The criteria of eligibility for merit goods are vague. A quasi-merit good constitutes a special case where government protection and sponsorship are obtained via public choice influenced either by special interests or a misconception. I claim that private bank deposits are a quasi-merit good. Bank stakeholders, as the true beneficiaries of uninterrupted supply of household savings, seek to exploit the public desire for bank stability. They join with other social and political groups to demand government intervention in the shape of deposit insurance. It becomes institutionalized as a government-backed scheme whose presence ‘nudges’ depositors to act in the desired manner. Government assumes implicit liability under the deposit guarantee, but may be required to inject public funds to keep the scheme running. Deposit protection has distributional effects: welfare is redistributed in favor of special interests