Approaches To Measuring Public Goods Demands

Although some public finance textbooks still teach that public goods demands cannot be measured,1 substantial progress has been made in developing and implementing techniques for measuring one form of public good--the benefits of improving environmental quality. This paper presents a brief review of the three major approaches to estimation of demands and benefits and a somewhat more detailed discussion of those techniques which are based market interactions between public and private goods. The analysis is limited to those public goods which are arguments in individual utility functions. Public goods which are inputs in production processes for marketed goods, for example, air quality in agricultural. production, affect cost, supply, and factor demand functions and through them affect one or more of the following: output prices, factor prices, and profits (quasi-rents). The benefits of increases In public goods supply can be measured in a conceptually straightforward manner from observable market data. See Freeman (1979a) for an elaboration.