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

Listed author(s):
  • Herriges, Joseph A.
  • Kling, Catherine L.
  • Phaneuf, Daniel J.

In this paper we consider the theoretical and empirical ramifications of welfare measurement in revealed preference models when weak complementarity does not hold. In the context of a Kuhn–Tucker model of recreation demand we show that, while it is possible to estimate preferences that do not appear to exhibit weak complementarity, the calculation of welfare measurements from these models requires a cardinal interpretation of preferences that cannot be tested. Furthermore, we reiterate the under-appreciated fact that even traditional use value estimates require a cardinal restriction on preferences that, while often intuitive, also cannot be tested. We demonstrate empirically that the choice of restrictions can have significant ramifications, as use value estimates can vary based on the assumed preference structure.

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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. Daniel J. Phaneuf & Catherine L. Kling & Joseph A. Herriges, 2000. "Estimation and Welfare Calculations in a Generalized Corner Solution Model with an Application to Recreation Demand," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 83-92, February.
  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. Bockstael, Nancy E & McConnell, Kenneth E, 1983. "Welfare Measurement in the Household Production Framework," American Economic Review, American Economic Association, vol. 73(4), pages 806-814, September.
  4. Udo Ebert, 1998. "Evaluation of Nonmarket Goods: Recovering Unconditional Preferences," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(2), pages 241-254.
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  6. W. Douglas Shaw & J. Scott Shonkwiler, 2000. "Brand Choice and Purchase Frequency Revisited: An Application to Recreation Behavior," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(3), pages 515-526.
  7. Flores, Nicholas E., 2002. "Non-paternalistic altruism and welfare economics," Journal of Public Economics, Elsevier, vol. 83(2), pages 293-305, February.
  8. Herriges, Joseph A. & Kling, Catherine L., 2003. "Recreation Demand Models," Staff General Research Papers Archive 10211, Iowa State University, Department of Economics.
  9. Jeffrey T. LaFrance & W. Michael Hanemann, 1989. "The Dual Structure of Incomplete Demand Systems," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 71(2), pages 262-274.
  10. Ronald Cummings & Glenn Harrison, 1995. "The measurement and decomposition of nonuse values: A critical review," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 5(3), pages 225-247, April.
  11. Bockstael, N E & McConnell, K E, 1993. "Public Goods as Characteristics of Non-market Commodities," Economic Journal, Royal Economic Society, vol. 103(420), pages 1244-1257, September.
  12. Larson, Douglas M., 1991. "Recovering weakly complementary preferences," Journal of Environmental Economics and Management, Elsevier, vol. 21(2), pages 97-108, September.
  13. Alan Randall, 1994. "Difficulty with the Travel Cost Method," Land Economics, University of Wisconsin Press, vol. 70(1), pages 88-96.
  14. Richard T. Carson, 2011. "Contingent Valuation," Books, Edward Elgar Publishing, number 2489.
  15. Kelvin J. Lancaster, 1966. "A New Approach to Consumer Theory," Journal of Political Economy, University of Chicago Press, vol. 74, pages 132-132.
  16. Nancy E. Bockstael & Catherine L. Kling, 1988. "Valuing Environmental Quality: Weak Complementarity with Sets of Goods," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 70(3), pages 654-662.
  17. Neill, Jon R., 1988. "Another theorem on using market demands to determine willingness to pay for non-traded goods," Journal of Environmental Economics and Management, Elsevier, vol. 15(2), pages 224-232, June.
  18. Larson, Douglas M., 1992. "Further results on willingness to pay for nonmarket goods," Journal of Environmental Economics and Management, Elsevier, vol. 23(2), pages 101-122, September.
  19. Herriges, Joseph A. & Phaneuf, Daniel J., 1999. "Choice Set Definition Issues in a Kuhn-Tucker Model of Recreation Demand," Staff General Research Papers Archive 5222, Iowa State University, Department of Economics.
  20. Herriges, Joseph A. & Kling, Catherine L. & Phaneuf, Daniel J., 1999. "Corner Solution Models of Recreation Demand: A Comparison of Competing Frameworks," Staff General Research Papers Archive 1513, Iowa State University, Department of Economics.
  21. Hausman, Jerry A, 1981. "Exact Consumer's Surplus and Deadweight Loss," American Economic Review, American Economic Association, vol. 71(4), pages 662-676, September.
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