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S.: Housing and pupil growth and development. J. Educ. Sociol. 28:370-380, 1955. 107. Michelson, W.: The physical environment as a mediating factor in school achievement. Presented at the Annual Meeting of the Canadian Sociology & Anthropology Association, Calgary, Alberta, 1968. 108. Lunn, J. E.: A study of Glasgow families living in one-apartment, two-apartment, and three-apartment tenement houses. Scot. Med. J. 6:125–129, 1961. 109. Power, J. G. P.: Health aspects of vertical living in Hong Kong. Community Health 1:316-320, 1970. 110. Bernstein, S. H.: Observations on the effects of housing on the incidence and spread of common respiratory diseases among Air Force recruits. Amer. J. Hygiene 65:162-171, 1957. 111. Fanning, D. M.: Families in flats. Brit. Med. J. 4:382-386, 1967. 112. Cappon, D.: Mental health in high-rise. Canad. J. Pub. Health 62:426–431, 1971. 113. Stevenson, A., Martin, E., and O'Neill, J.: High Living: A Study of Family Life in Flats. London, Melbourne University Press, 1967. 114. Jacobs, M. A., Spilken, Z. A., Norman, N. M., and Anderson, L. S.: Life stress and respiratory illness. Psychosom. Med. 32:233-242, 1970. 115. Rahe, R. H.: Subject's recent life changes and the near-future illness susceptibility, in Lipowski, Z. J. (ed.): Advances in Psychosomatic Medicine, Vol. 8 Psychosocial Aspects of Physical Illness. Basel, S. Karger, 1972, 2-19. 116. Rahe, R. H., Arthur, R. J.: Life change patterns surrounding illness experience. J. Psychosom. Res. 11:341-345, 1968. 117. Schmale, A. H.: Giving up as a final common pathway to changes in health, in Lipowski, Z. J. (ed.): Advances in Psychosomatic Medicine, Vol. 8 Psychosocial Aspects of Physical Illness. Basel, S. Karger, 1972, 20-40. 118. Chapin, F. S.: The effect of slum clearance and rehousing on family and community relationships in Minneapolis. Amer. J. Sociol. 43:744-763, 1938. 119. Chapin, F. S.: An experiment on the social effects of good housing. Amer. Sociol. Rev. 5:868-879, 1940. 120. Hare, E. H., and Shaw, G. K.: Mental Health on a New Housing Estate. London, Oxford University Press, 1965. 121. Martin, F. M., Brotherston, J. H. F., and Chave, S. P. W.: Incidence of neurosis in a new housing estate. Brit. J. Prev. Soc. Med. 11:196-202, 1957. 122. Taylor, L., and Chave, S.: Mental Health and Environment. London, Longmans, 1964. 123. Hole, V.: Social effects of planned rehousing. Town Planning Rev. 30:161-173, 1959. 124. Maule, H. G.: The family. Social and psychological aspects of rehousing. The Advancement of Science. 12:443-448, 1956. 125. Mogey, J. M.: Family and Neighborhood. London, Oxford University Press, 1956. 126. Morris, R. N., and Mogey, J. M.: The Sociology of Housing. London, Routledge & Kegan Paul, 1965. 127. Young, M., and Willmott, P.: Family and Kinship in East London. New York, The Free Press, 1957. 128. Martin, F. M.: The Community. Social and psychological aspects of rehousing. The Advancement of Science. 12:448-453, 1956. 129. Berger, B.: Working Class Suburb: A Study of Auto Workers in Suburbia. Berkeley, University of California Press, 1960. 130. Gans, H. J.: The Levittowners. New York, Pantheon Books, 1967. 131. Gans, H. J.: People and Plans. Essays on Urban Problems and Solutions. New York, Basic Books, 1968. 132. Hallowitz, D. L.: The relationship between selected goals of prospective homeowners and their experiences in a new suburban housing development. Dissert. Abstr. 29A:2435-2436, 1969. 133. Thoma, L., and Lindemann, E.: Newcomers' problems in a suburban community. J. Amer. Institute of Planners 27:185-193, 1961. 134. Gans, H. J.: Effects of the move from city to suburb, in Duhl, L. G. (ed.): The Urban Condition. New York, Basic Books, 1963, 184-198. 135. Gans, H. J.: Social and physical planning for the elimination of urban poverty, in Rosenberg, B., Gerver, I., and Howton, F. W. (eds.): Mass Society in Crisis. 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Goldfarb, A. I.: The evaluation of geriatric patients following treatment, in Hoch, P. H., and Zubin, J. (eds.): The Evaluation of Psychiatric Treatment. New York, Grune and Stratton, 1964, 271-308. 143. Kay, D. W. K., Norris, V., and Post, F.: Prog nosis in psychiatric disorders of the elderly. J. Ment. Sci. 102:129-140, 1956. 144. Whittier, J. R., and Williams, D.: The coincidence and constancy of mortality figures for aged psychotic patients admitted to state hospitals. J. Nerv. Ment. Dis. 124:618-620, 1956. 145. Lieberman, M. A.: Relationship for mortality rates to entrance to a home for the aged. Geriatrics 16:515-519, 1961. 146. Aldrich, C. K.: Personality factors and mortality in the relocation of the aged: The Gerontologist 4:92-93, 1964. 147. Aldrich, Č. K., and Mendkoff, E.: Relocation of the aged and disabled: a mortality study. J. Amer. Geriat. Soc. 11:185–194, 1963. 148. Aleksandrowicz, D. R.: Fire and its aftermath on a geriatric ward. Bull. Menninger Clinic 25:23-32, 1961. 149. Jasnau, K. F.: Individualized versus mass transfer of nonpsychotic geriatric patients from mental hospitals to nursing homes, with special references to the death rate. J. Amer. Geriat. Soc. 15:280–284, 1967. 150. Killian, E. C.: Effects of geriatric transfers on mortality rates. Social Work 15:19-26, 1970. 151. Novick, L. J.: Easing the stress of moving day. Hospitals 41:No. 16, 67-74, 1967. 152. Kasl, S. V.: Physical and mental health effects of involuntary relocation and institutionalization on the elderly—a review. Amer. J. Pub. Health 62:377-384, 1972. 153. Lieberman, M. A.: Institutionalization of the aged: Effects on behavior. J. Gerontol. 24:330-340, 1969. 154. Lichfield, N.: Relocation: The impact on housing welfare. J. Amer. Institute Planners 27:199-203, 1961. 155. Pozen, M. W., Goshin, A. R., and Bellin, L. E.: Evaluation of housing standards of families within four years of relocation by urban renewal. Amer. J. Pub. Health 58:1256–1264, 1968. 156. Thursz, D.: Where Are They Now? Washington, D.C., Health and Welfare Council of the National Capital Area, 1966. 157. Fried, M.: Grieving for a lost home, in Duhl, L. J. (ed.): The Urban Condition, New York, Basic Books, 1963, 151-171. 158. Fried, M.: Transitional functions of working-class communities: Implications for forced relocation, in Kantor, M. B. (ed.): Mobility and Mental Health. Springfield, Ill., C. C. Thomas, 1965, 123-165. 159. Niebanck, P. L.: Relocation in Urban Planning: From Obstacle to Opportunity. Philadelphia, University of Pennsylvania Press, 1968. 160. Shanas, E.: The Health of Older People. Cambridge, Harvard University Press, 1962. 161. Key, W. H.: When People Are Forced to Move. Topeka, The Menninger Foundation, 1967. 162. Barker, R. H.: Ecological Psychology. Stanford, Stanford University Press, 1968. 163. Craik, E. H.: Environmental psychology. In New Directions in Psychology 4. 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H., Lipson, A., and Levine, S.: Help patterns in severe illness: the roles of kin network, non-family resources, and institutions. J. Marriage and Family 34:32-41, 1972. 172. Litman, T. J.: The family and physical rehabilitation. J. Chron. Dis. 19:211-217, 1966. 173. Burgess, E. W.: Social relations, activities, and personal adjustment. Amer. J. Sociol. 59:352-360, 1954. 174. Donahue, W., Orbach, H. L., and Pollak, O.: Retirement: The emerging social pattern, in Tibbitts, C. (ed.): Handbook of Social Gerontology. Chicago, The University of Chicago Press, 1960, 330-406. 175. Britton, J. H.: Living in rural Pennsylvania community in old age, in Carp, F. M., and Burnett, W. M. (eds.): Patterns of Living and Housing of Middle-Aged and Older People. Washington, D.C. HEW, PHS Publication No. 1496, 1966, 99–105. 176. Maddox, G. L.: Activity and morale: A longitudinal study of selected elderly subjects. Social Forces 42:195-204, 1963. 177. Palmore, E. B.: The effects of aging on activities and attitudes. The Gerontologist 8:259-263, 1968. 178. Haven, B. J.: An investigation of activity patterns and adjustment in an aging population. The Gerontologist 8:201-206, 1968. A Rationale for Government Intervention in Housing: Housing as a "Merit Good" By Joseph S. De Salvo Summary There are a number of plausible rationales for government intervention into private markets. Among these is the rationale that certain goods are so meritorious that they should be publicly provided or subsidized. Such goods are called merit goods, and housing is frequently thought to be an example. It is seen that the idea of merit good is most fruitfully treated as a positive consumption externality, i.e., a good that confers benefits on other than those directly consuming it. The existence of such goods gives rise to the need for transfers in kind for the purpose of achieving the most efficient use of resources. Whether or not consumption externalities exist and in what magnitude are difficult empirical questions. Although there now apparently exists a theoretically sound method for answering these questions, the method has not yet been applied to housing (or for that matter to any other specific good or service). Nevertheless, some empirical work relevant to the issue has been performed for housing. This work indicates that consumption-externality benefits must be at least as large as 10 to 15 percent of the public subsidy to ensure that certain existing housing programs are efficient uses of resources. Whether or not present housing programs produce this much in consumption externalities is unknown. If in fact consumption-externaltity benefits are created by housing, then the case for subsidized housing programs is strengthened and the case for cash transfers is weakened. Nevertheless, there is still the problem of the appropriate form of the inkind transfer. It is argued in the text that housing transfers should take the form of rent certificates rather than some other form such as public housing projects, interest rate subsidies, rent control, and so forth. If in fact consumption-externality benefits are not created by housing, then the case for subsidized housing, in whatever form, is weakened and the case for cash transfers is strengthened. There are other factors favoring cash transfers as well. Consequently, we conclude that if housing is a merit good, it should be subsidized via rent certificates. If it is not, then housing should not be specifically subsidized; rather whatever transfers are justified should be in cash. Which of these cases is appropriate in the United States today is an empirical question not yet answered. The Rationale for Government One of the greatest achievements of economic theory has been the elucidation of the conditions under which competitive markets produce efficient resource use. Although the idea dates back at least to the time of Adam Smith, it was not until fairly recently that the conditions under which the theorem holds were satisfactorily worked out.2 Two propositions about competitive markets are of special importance for our purposes: (1) a competitive equilibrium is efficient, and (2) any efficient allocation of resources can be achieved by competitive markets, given a suitable reallocation of initial resources. These characteristics of competitive markets provide a rationale for decentralized decisionmaking by individuals and firms without government intervention. This is basically Adam Smith's "invisible hand." Private self-interest on the part of consumers and producers in a competitive environment results in the best use of scarce resources. Also, if we can decide on some socially desired distribution of incomes and a mechanism for attaining it, then the competitive market can be used to obtain an efficient allocation of resources consistent with the desired distribution of income. This means decisions regarding equity can be separated 1 This section draws heavily on the author's paper, "The Economic Rationale for Transportation Planning," in J. S. DeSalvo (ed.), Perspectives on Regional Transportation Planning (Lexington: D. C. Heath, 1973) pp. 21-89. * The most complete presentation is found in G. Debreu, Theory of Value: An Axiomatic Analysis of Economic Equilibrium (New York: Wiley, 1959). from the efficient operation of an economy; the latter can be left to private competitive markets. These propositions provide the intellectual rationale for private enterprise operating through competitive markets. Nevertheless, these powerful propositions are based on certain assumptions that may not hold for particular economies. When they do not hold, the basic propositions justifying decentralized decisionmaking no longer hold, and there is a need for some kind of collective decisionmaking designed to produce efficiency. Competitive markets may fail to be economically efficient for a number of reasons, and, of course, there is no presumption that noncompetitive markets will be efficient. Hence, there are two broad issues with which to deal. The first concerns those factors that prevent otherwise competitive markets from achieving efficiency. The second concerns noncompetitive market structures. Since competitive markets are so important to the efficient operation of a decentralized economy, the first question one might raise is whether or not such markets can in fact work. It turns out a competitive equilibrium depends on the absence of increasing returns to scale large relative to the market. The existence of scale economies large relative to the market may not permit the operations of competitive markets, for the firm would be induced to expand its production until it was one of a few firms or the only firm occupying the market. However, if only one or a few firms operated in a single market, each would have some control over price. Such "high concentration" would violate the requirement for competition that specifies no control over price. Thus, the absence of increasing returns large relative to the market means that a competitive equilibrium is possible. There are, however, other conditions that may not permit such a competitive equilibrium to be efficient. Perhaps the most important of these is externalities.* Externalities are interdependencies among economic units for which no market exists. These interdependencies are a barrier to achieving economic efficiency because there is no market mechanism to value them. The smoke 3 See M. J. Farrell, "The Convexity Assumption in the Theory of Competitive Markets," Journal of Political Economy, Vol. 67, No. 4, Aug. 1959, pp. 377-391; J. Rothenberg, "Non-Convexity, Aggregation, and Pareto Optimality," Journal of Political Economy, Vol. 68, No. 5, Oct. 1960, pp. 435-468; R. M. Starr, "Quasi-Equilibria in Markets with Non-Convex Preferences," Econometrica, Vol. 37, No. 1, Jan. 1969, pp. 25-38. 'The classical discussion of externalities may be found in A. C. Pigou, The Economics of Welfare, 4th ed. (London: Macmillan, 1932), Part 2, Ch. 9. emitted by the steel manufacturer may increase the cleaning bills of neighboring households, but the producer does not perceive this cost. Hence, the social cost of steel production is greater than the private cost. If it were possible to make the producer bear the full social cost of his output, the production of steel (and consequently smoke) would be less. In fact, the amounts of these products would be optimal in the sense of efficient resource use. Where there exists no way of "internalizing" externalities, the private competitive market will result in inefficient resource use. Aside from increasing returns, where competition may not exist, and externalities, where if competition exists it cannot be efficient, there is a special kind of commodity that the market may not produce in appropriate amounts. This kind of commodity is called a public good (also called a collective or social good). It is a good that can be consumed by more than one person at the same time at no extra expense, and it actually costs something to exclude potential consumers.5 When an ordinary commodity is consumed, the units consumed are thereby denied to others. For public goods, however, it may be impossible or very costly to exclude people from consumption. In those instances where the cost of exclusion exceeds the gain, private enterprise will not produce the good, even though it may be desired by consumers, because consumers cannot be made to pay their fair share for its provision. Thus, in an economy with a demand for public goods, these demands may not be satisfied by private enterprise even when competitive markets prevail. There is therefore a possible role for collective action in the provision of such goods. Implicit in the definition of a competitive market are certainty and complete information on the parts of buyers and sellers. Uncertainty, a lack of knowledge of which state of nature will prevail in the future, is not in and of itself inconsistent with competition. People can make contracts contingent on the occurrence of certain possible outcomes. Insurance is an example of The implications of the existence of such goods for attainment of efficiency by private markets were presented by Samuelson in three articles: P. A. Samuelson, "Aspects of Public Expenditure Theories," Review of Economics and Statistics, Vol. 40, No. 4, Nov. 1958, pp. 332-338; P. A. Samuelson, "Diagrammatic Exposition of a Theory of Public Expenditure," Review of Economics and Statistics, Vol. 37, No. 4, Nov. 1955, pp. 350-356; P. A. Samuelson, "The Pure Theory of Public Expenditure," Review of Economics and Statistics, Vol. 36, No. 4, Nov. 1954, pp. 387-389. The definition used here is adapted from R. N. McKean, Public Spending (New York: McGraw-Hill, 1968). |