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Benefit Transfer via Preference Calibration: "Prudential Algebra" for Policy

  • V. Kerry Smith
  • George Van Houtven
  • Subhrendu K. Pattanayak

This paper proposes a new approach to benefit transfer. The method assumes a specific form for preferences and uses available benefit information to identify and calibrate the preference parameters to match the existing benefit estimates. This approach assures economic consistency of the transfers. Benefit measures can never be inconsistent with household income. The logic also offers a series of potentially observable ‘‘predictions’’ that can be used to gauge the plausibility of benefit transfers. When multiple benefit estimates from different methods are available such as hedonic property value, travel cost demand, and contingent valuation, the framework uses the definition of the benefit concept from each method in a single preference function to reconcile differences. It provides a specific way to take account of baseline conditions and scope effects (i.e., the size of the proposed change) consistently in the transfer. The method is illustrated using estimates for benefit measure changes in water quality from three studies: travel cost demand, hedonic property value, and contingent valuation analysis.Q26

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Article provided by University of Wisconsin Press in its journal Land Economics.

Volume (Year): 78 (2002)
Issue (Month): 1 ()
Pages: 132-152

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Handle: RePEc:uwp:landec:v:78:y:2002:i:1:p:132-152
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  1. Hausman, Jerry A, 1981. "Exact Consumer's Surplus and Deadweight Loss," American Economic Review, American Economic Association, vol. 71(4), pages 662-76, September.
  2. Imbens, G.W. & Lancaster, T., 1991. "Combining Micro and Macro Data in Microeconometric Models," Harvard Institute of Economic Research Working Papers 1578, Harvard - Institute of Economic Research.
  3. Quigley, John M., 1982. "Nonlinear budget constraints and consumer demand: An application to public programs for residential housing," Journal of Urban Economics, Elsevier, vol. 12(2), pages 177-201, September.
  4. James M. Poterba, 1992. "Taxation and Housing: Old Questions, New Answers," NBER Working Papers 3963, National Bureau of Economic Research, Inc.
  5. 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.
  6. Jeffrey Englin & David Lambert, 1995. "Measuring angling quality in count data models of recreational fishing," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 6(4), pages 389-399, December.
  7. Smith, V Kerry & Huang, Ju-Chin, 1995. "Can Markets Value Air Quality? A Meta-analysis of Hedonic Property Value Models," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 209-27, February.
  8. Englin, Jeffrey & Lambert, David & Shaw, W. Douglass, 1997. "A Structural Equations Approach to Modeling Consumptive Recreation Demand," Journal of Environmental Economics and Management, Elsevier, vol. 33(1), pages 33-43, May.
  9. Jeffrey T. LaFrance, 1990. "Incomplete Demand Systems And Semilogarithmic Demand Models," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 34(2), pages 118-131, 08.
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  11. Roy Brouwer & Frank Spaninks, 1999. "The Validity of Environmental Benefits Transfer: Further Empirical Testing," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 14(1), pages 95-117, July.
  12. Epple, Dennis, 1987. "Hedonic Prices and Implicit Markets: Estimating Demand and Supply Functions for Differentiated Products," Journal of Political Economy, University of Chicago Press, vol. 95(1), pages 59-80, February.
  13. repec:reg:rpubli:62 is not listed on IDEAS
  14. Mark Morrison & Jeff Bennett & Russell Blamey & Jordan Louviere, 2002. "Choice Modeling and Tests of Benefit Transfer," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(1), pages 161-170.
  15. Kevin J. Boyle & P. Joan Poor & Laura O. Taylor, 1999. "Estimating the Demand for Protecting Freshwater Lakes from Eutrophication," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(5), pages 1118-1122.
  16. K. E. McConnell, 1990. "Double Counting in Hedonic and Travel Cost Models," Land Economics, University of Wisconsin Press, vol. 66(2), pages 121-127.
  17. Kirchhoff, Stefanie & Colby, Bonnie G. & LaFrance, Jeffrey T., 1997. "Evaluating the Performance of Benefit Transfer: An Empirical Inquiry," Journal of Environmental Economics and Management, Elsevier, vol. 33(1), pages 75-93, May.
  18. Kenneth L. Judd, 1998. "Numerical Methods in Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262100711, June.
  19. Brouwer, Roy, 2000. "Environmental value transfer: state of the art and future prospects," Ecological Economics, Elsevier, vol. 32(1), pages 137-152, January.
  20. Willig, Robert D., 1978. "Incremental consumer's surplus and hedonic price adjustment," Journal of Economic Theory, Elsevier, vol. 17(2), pages 227-253, April.
  21. George R. Parsons, 1991. "A Note on Choice of Residential Location in Travel Cost Demand Models," Land Economics, University of Wisconsin Press, vol. 67(3), pages 360-364.
  22. Downing, Mark & Ozuna, Teofilo Jr., 1996. "Testing the Reliability of the Benefit Function Transfer Approach," Journal of Environmental Economics and Management, Elsevier, vol. 30(3), pages 316-322, May.
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