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Can Weak Substitution be Rehabilitated?

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  • V. Kerry Smith
  • Mary F. Evans
  • H. Spencer Banzhaf
  • Christine Poulos

Abstract

This paper develops a graphical analysis and an analytical model that demonstrate how weak substitution can be used for non-market valuation. Both weak complementarity and weak substitution can be evaluated as restrictions that allow quantity or quality changes in non-market goods to be described as price changes that yield equivalent changes in individual well being. They are Hicksian equivalents in that the price changes yield the same utility changes as would the quantity or quality changes. After discussion of several potential applications of weak substitution, the paper develops the parallel between the restriction and recent strategies from modeling differentiated goods.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13903.

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Date of creation: Mar 2008
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Publication status: published as V. Smith & Mary Evans & H. Banzhaf & Christine Poulos, 2010. "Can Weak Substitution be Rehabilitated?," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 45(2), pages 203-221, February.
Handle: RePEc:nbr:nberwo:13903

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  1. Holger Sieg & V. Kerry Smith & H. Spencer Banzhaf & Randy Walsh, . "Estimating the General Equilibrium Benefits of Large Changes in Spatially Delineated Public Goods," GSIA Working Papers 2003-07, Carnegie Mellon University, Tepper School of Business.
  2. Willig, Robert D, 1976. "Consumer's Surplus without Apology," American Economic Review, American Economic Association, vol. 66(4), pages 589-97, September.
  3. Bartik, Timothy J., 1988. "Evaluating the benefits of non-marginal reductions in pollution using information on defensive expenditures," Journal of Environmental Economics and Management, Elsevier, vol. 15(1), pages 111-127, March.
  4. Bullock, David S. & Minot, Nicholas, 2006. "On Measuring the Value of a Nonmarket Good Using Market Data," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia 25272, International Association of Agricultural Economists.
  5. 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.
  6. Hausman, Jerry A., 1979. "The econometrics of labor supply on convex budget sets," Economics Letters, Elsevier, vol. 3(2), pages 171-174.
  7. V. Kerry Smith & H. Spencer Banzhaf, 2004. "A Diagrammatic Exposition of Weak Complementarity and the Willig Condition," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(2), pages 455-466.
  8. Vartia, Yrjo O, 1983. "Efficient Methods of Measuring Welfare Change and Compensated Income in Terms of Ordinary Demand Functions," Econometrica, Econometric Society, vol. 51(1), pages 79-98, January.
  9. Peter C. Reiss & Matthew W. White, 2006. "Evaluating Welfare with Nonlinear Prices," NBER Working Papers 12370, National Bureau of Economic Research, Inc.
  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. Hausman, Jerry A, 1981. "Exact Consumer's Surplus and Deadweight Loss," American Economic Review, American Economic Association, vol. 71(4), pages 662-76, September.
  12. Willig, Robert D., 1978. "Incremental consumer's surplus and hedonic price adjustment," Journal of Economic Theory, Elsevier, vol. 17(2), pages 227-253, April.
  13. Bockstael, N E & McConnell, K E, 1993. "Public Goods as Characteristics of Non-market Commodities," Economic Journal, Royal Economic Society, vol. 103(420), pages 1244-57, September.
  14. Milton Friedman, 1949. "The Marshallian Demand Curve," Journal of Political Economy, University of Chicago Press, vol. 57, pages 463.
  15. Larson, Douglas M., 1991. "Recovering weakly complementary preferences," Journal of Environmental Economics and Management, Elsevier, vol. 21(2), pages 97-108, September.
  16. Smith, V. Kerry & Banzhaf, H. Spencer, 2007. "Quality adjusted price indexes and the Willig condition," Economics Letters, Elsevier, vol. 94(1), pages 43-48, January.
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