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

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

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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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
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622870

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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. 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.
  3. Larson, Douglas M., 1991. "Recovering weakly complementary preferences," Journal of Environmental Economics and Management, Elsevier, vol. 21(2), pages 97-108, September.
  4. Alan Randall, 1994. "Difficulty with the Travel Cost Method," Land Economics, University of Wisconsin Press, vol. 70(1), pages 88-96.
  5. Daniel J. Phaneuf & Catherine L. Kling & Joseph A. Herriges, 1998. "Estimation and Welfare Calculations in a Generalized Corner Solution Model with an Application to Recreation Demand," Center for Agricultural and Rural Development (CARD) Publications 99-wp207, Center for Agricultural and Rural Development (CARD) at Iowa State University.
  6. Hausman, Jerry A, 1981. "Exact Consumer's Surplus and Deadweight Loss," American Economic Review, American Economic Association, vol. 71(4), pages 662-76, September.
  7. Herriges, Joseph A. & Kling, Catherine L., 2003. "Recreation Demand Models," Staff General Research Papers 10211, Iowa State University, Department of Economics.
  8. 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.
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