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What's the use? welfare estimates from revealed preference models when weak complementarity does not hold

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  • Herriges, Joseph A.
  • Kling, Catherine L.
  • Phaneuf, Daniel J.

Abstract

The focal point of the revealed preference (RP) valuation literature, including recreation demand and random utility maximization (RUM) models, has been on eliciting the "use" value associated with environmental amenities, i.e., that portion of value associated with direct use of a resource. Mäler's (1974) concept of weak complementarity is typically invoked to justify this focus. Indeed, weak complementarity explicitly or implicitly underlies most of the RP literature. This paper considers the measurement of welfare in RP models when weak complementarity does not hold. In particular, the Kuhn-Tucker (KT) framework (e.g., Phaneuf et al. 2000) does not impose weak complementarity a priori, raising the possibility of rejecting weak complementarity in estimation and the question as to what is the proper welfare measure to report. Although existence value cannot be measured, the authors argue that in some circumstances there are components of total value outside of use value which RP methods may help to illuminate.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Environmental Economics and Management.

Volume (Year): 47 (2004)
Issue (Month): 1 (January)
Pages: 55-70

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Handle: RePEc:eee:jeeman:v:47:y:2004:i:1:p:55-70

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Web page: http://www.elsevier.com/locate/inca/622870

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References

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  1. Carson, Richard T. & Hanemann, W. Michael, 2006. "Contingent Valuation," Handbook of Environmental Economics, in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 2, chapter 17, pages 821-936 Elsevier.
  2. Daniel J. Phaneuf & Catherine L. Kling & Joseph A. Herriges, 2000. "Estimation and Welfare Calculations in a Generalized Corner Solution Model with an Application to Recreation Demand," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 83-92, February.
  3. Herriges, Joseph A. & Kling, Catherine L., 2003. "Recreation Demand Models," Staff General Research Papers 10211, Iowa State University, Department of Economics.
  4. Bockstael, Nancy E & McConnell, Kenneth E, 1983. "Welfare Measurement in the Household Production Framework," American Economic Review, American Economic Association, vol. 73(4), pages 806-14, September.
  5. Larson, Douglas M., 1991. "Recovering weakly complementary preferences," Journal of Environmental Economics and Management, Elsevier, vol. 21(2), pages 97-108, September.
  6. Wales, T. J. & Woodland, A. D., 1983. "Estimation of consumer demand systems with binding non-negativity constraints," Journal of Econometrics, Elsevier, vol. 21(3), pages 263-285, April.
  7. Alan Randall, 1994. "Difficulty with the Travel Cost Method," Land Economics, University of Wisconsin Press, vol. 70(1), pages 88-96.
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Citations

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Cited by:
  1. Bhat, Chandra R., 2008. "The multiple discrete-continuous extreme value (MDCEV) model: Role of utility function parameters, identification considerations, and model extensions," Transportation Research Part B: Methodological, Elsevier, vol. 42(3), pages 274-303, March.
  2. Jared C. Carbone & V. Kerry Smith, 2010. "Valuing ecosystem services in general equilibrium," NBER Working Papers 15844, National Bureau of Economic Research, Inc.
  3. Kuriyama, Koichi & Michael Hanemann, W. & Hilger, James R., 2010. "A latent segmentation approach to a Kuhn-Tucker model: An application to recreation demand," Journal of Environmental Economics and Management, Elsevier, vol. 60(3), pages 209-220, November.
  4. Castro, Marisol & Bhat, Chandra R. & Pendyala, Ram M. & Jara-Díaz, Sergio R., 2012. "Accommodating multiple constraints in the multiple discrete–continuous extreme value (MDCEV) choice model," Transportation Research Part B: Methodological, Elsevier, vol. 46(6), pages 729-743.
  5. Bhattacharjee, Subhra & Kling, Catherine L. & Herriges, Joseph A., 2009. "Kuhn-Tucker Estimation of Recreation Demand – A Study of Temporal Stability," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49408, Agricultural and Applied Economics Association.
  6. Ian Bateman & Georgina Mace & Carlo Fezzi & Giles Atkinson & Kerry Turner, 2011. "Economic Analysis for Ecosystem Service Assessments," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 48(2), pages 177-218, February.
  7. Palmquist, Raymond B., 2005. "Weak complementarity, path independence, and the intuition of the Willig condition," Journal of Environmental Economics and Management, Elsevier, vol. 49(1), pages 103-115, January.
  8. David G. Brown, . "Falsifying the “Goodness” of Nonmarket Goods with Revealed Preference," Departmental Working Papers 2008-08, Department of Economics, Louisiana State University.
  9. Ebert, Udo, 2007. "Revealed preference and household production," Journal of Environmental Economics and Management, Elsevier, vol. 53(2), pages 276-289, March.
  10. von Haefen, Roger H., 2007. "Empirical strategies for incorporating weak complementarity into consumer demand models," Journal of Environmental Economics and Management, Elsevier, vol. 54(1), pages 15-31, July.
  11. Eom, Young-Sook & Larson, Douglas M., 2006. "Improving environmental valuation estimates through consistent use of revealed and stated preference information," Journal of Environmental Economics and Management, Elsevier, vol. 52(1), pages 501-516, July.

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