I have never been fond of the term “demerit good”. It bestows the objective language of the economist onto something that is fundamentally subjective. Alcohol is supposedly a demerit good because of its effect on health, which would be fine if moderate drinkers didn’t live longer than teetotalers and if health were the only thing that mattered, but it isn’t. No decent economist would be arrogant enough to tell someone that the risks of heavy drinking outweigh their enjoyment of getting drunk.
In 2007, Alvin Roth coined the term “repugnant transactions” to describe the exchange of controversial goods and services. I prefer this to the term “demerit good” because what people find repugnant varies in time and place and the word “repugnant” more accurately reflects the fact that this is really a question of personal taste and morality. Roth’s argument was that repugnance can be an unhelpful constraint on markets. Moral opposition to the sale of live organs, for example, costs lives.
Roth’s new book Moral Economics expands on this theme. Opposition to repugnant transactions is often difficult to justify in logical terms. California’s ban on horse meat – one of Roth’s favourite examples – applies only to horse meat sold for human consumption. It is not illegal to kill a horse for other purposes, nor is it illegal to turn a horse into pet food. It is only illegal to kill a horse “if that person knows or should have known that any part of that horse will be used for human consumption.” It is not a question of animal rights or food safety. The law reflects nothing more than an irrational disgust.
Moral objections are usually framed as consequentialist objections, but further probing often reveals these to be hollow. Those who favour laws against incest (of whom I am one, fwiw) on the grounds that it can lead to birth defects are generally not prepared to make exceptions for family members who use failsafe contraception. Those who support laws against tobacco on the grounds that smoking imposes a cost on the health service seldom change their minds when it is explained that the net cost is less than zero. Those who, like me, support the criminalisation of child pornography on the grounds that it fuels demand for the creation of more child pornography, and thus child abuse, remain deeply uneasy (at best) about such images being generated by CGI or AI.
We are not, therefore, talking about market transactions that necessarily create negative externalities. Activities such as prostitution and dwarf tossing are consensual and have no direct spillover effects onto others, but are nevertheless widely condemned.
