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Choice Behaviour and Verbal Behaviour: A Critical Assessment of their Relevance for Practical Policy

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  • Bernard M.S. van Praag

    ()
    (Foundation for Economic Research, University of Amsterdam)

  • P. Frijters

    (Foundation for Economic Research, University of Amsterdam)

Abstract

In this paper we review five different methods used to determine the welfareeffects of policy changes: hedonic price analysis, contingent valuation, conjoint measurement, the Income Evaluation Approach, and the Cantril approach. In the first three approaches, an attempt is made to discover the implicit prices which individuals use to value several amenities. Such analyses are in practice frequently used to discover the value of a warm climate, the cost of noise pollution, the value of an aspect of a musical performance, the importance of a particular trait of a job applicant, etc.In short, the first three approaches are used to discover prices for goods forwhich there are no directly observable prices. These approaches can be used to find the money-equivalent amount that policy changes are worth to different individuals. They can however not be used for welfare comparisons as they do not tell ushow much welfare different individuals derive for each unit of money.The other methods are based on individual's valuation of their own income ortheir life as a whole. These two approaches can, and have been, used to find implicit prices, but they also have a much wider use. In theory and in practice, they can be used to make welfare statements about proposed or actualised policy changes.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 97-119/1.

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Date of creation: 21 Nov 1997
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Handle: RePEc:dgr:uvatin:19970119

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Web page: http://www.tinbergen.nl

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  1. van Beek, Krijn W. H. & Koopmans, Carl C. & van Praag, Bernard M. S., 1997. "Shopping at the labour market: A real tale of fiction," European Economic Review, Elsevier, vol. 41(2), pages 295-317, February.
  2. Rao, Vijayendra, 1993. "The Rising Price of Husbands: A Hedonic Analysis of Dowry Increases in Rural India," Journal of Political Economy, University of Chicago Press, vol. 101(4), pages 666-77, August.
  3. Van Praag, Bernard, 1971. "The welfare function of income in Belgium: An empirical investigation," European Economic Review, Elsevier, vol. 11(3), pages 337-369.
  4. Bernard M. S. van Praag & Nico L. van der Sar, 1988. "Household Cost Functions and Equivalence Scales," Journal of Human Resources, University of Wisconsin Press, vol. 23(2), pages 193-210.
  5. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
  6. Van Praag, Bernard M. S., 1988. "Climate equivalence scales : An application of a general method," European Economic Review, Elsevier, vol. 32(4), pages 1019-1024, April.
  7. Kahneman, Daniel & Knetsch, Jack L., 1992. "Valuing public goods: The purchase of moral satisfaction," Journal of Environmental Economics and Management, Elsevier, vol. 22(1), pages 57-70, January.
  8. Plug, Erik J. S. & van Praag, Bernard M. S. & Hartog, Joop, 1999. "If we knew ability, how would we tax individuals?," Journal of Public Economics, Elsevier, vol. 72(2), pages 183-211, May.
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Cited by:
  1. Simona Šarotar Žižek & Matjaž Mulej & Sonja Treven, 2010. "Requisite Holism Of Individuals As A Precondition For The Humankind’S Way Out From The 2008- Crisis," Analele Stiintifice ale Universitatii "Alexandru Ioan Cuza" din Iasi - Stiinte Economice, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 57, pages 399-419, november.
  2. Paul Dolan & Robert Metcalfe, 2008. "Comparing Willingness-to-Pay and Subjective Well-Being in the Context of Non-Market Goods," CEP Discussion Papers dp0890, Centre for Economic Performance, LSE.
  3. Rojas, Mariano, 2004. "Well-being and the Complexity of Poverty: A Subjective Well-being Approach," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).

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