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Valuation of public goods: an intertemporal mixed demand approach

Author

Listed:
  • H. Youn Kim

    (Western Kentucky University)

  • Keith R. McLaren

    (Monash University)

  • K. K. Gary Wong

    (The University of Macau)

Abstract

This paper presents a new mixed demand model for measuring the value of public goods in an intertemporal optimization framework. From the specification of an indirect utility function allowing for public goods, direct demand functions for private goods are derived and estimated jointly with the Euler equation for intertemporal consumption behavior, using US data. This allows us to identify the marginal utility of private consumption and to obtain the inverse demand or shadow price of a public good, which is then related to its observed price to assess whether the public good is efficiently provided. There is evidence, though suggestive, that the public good as measured by national defense in the USA has been inefficiently provided over the past decades.

Suggested Citation

  • H. Youn Kim & Keith R. McLaren & K. K. Gary Wong, 2020. "Valuation of public goods: an intertemporal mixed demand approach," Empirical Economics, Springer, vol. 59(5), pages 2223-2253, November.
    • Handle: RePEc:spr:empeco:v:59:y:2020:i:5:d:10.1007_s00181-019-01734-0
    DOI: 10.1007/s00181-019-01734-0
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    More about this item

    Keywords

    An indirect utility function; Mixed demand system; Public goods; Efficiency condition; The Euler equation;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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