Public Goods as Characteristics of Non-market Commodities
In benefit-cost analysis, it is useful to model public goods as the quality of privately consumed nonmarketed goods. This strategy is often pursued in valuing environmental amenities. The theoretical foundations of this model have not been fully developed. In this paper, comparative statics results are derived for quality changes of nonmarket goods. The results reveal some common misconceptions about welfare measurement of quality changes. Conditions are presented for a quality-induced change in the Marshallian consumer surplus of the nonmarket good to approximate the 'true' compensated welfare measure. The conditions are equally necessary for obtaining 'exact' welfare measures. Copyright 1993 by Royal Economic Society.
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Volume (Year): 103 (1993)
Issue (Month): 420 (September)
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