The article points out that a subsidy-in-kind, such as below-cost education provided by state universities, replaces more private consumption of the subsidized good that an equivalent money subsidy, such as a scholarship. Indeed, a subsidy-in-kind may reduce total consumption. Empirical estimates in the article indicate that in higher education (a) about three-fourths of government expenditures substitute for private expenditures, (b) this fraction has exceeded one in a recent period, (c) a substantial part of this government-private substitution is due to the in-kind form of government subsidies, and (d) there is less government-private substitution in enrollment than expenditures.

The 1962 drug amendments seek to prevent wasted expenditure stimulated by exaggerated claims for effectiveness of new drugs by requiring premarketing approval of all new drug claims by the Food and Drug Administration. The compliance costs are shown to have engendered a marked reduction in drug innovation. Consumer surplus analysis is then adapted and supplemented with "expert" drug evaluations to estimate the relevant benefits and costs. The main finding is that benefits forgone on effective new drugs exceed greatly the waste avoided on ineffective drugs. The estimated net impact is equivalent to a 5-10 percent tax on drug purchases.