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Accounting for subsistence needs in non-market valuation: A simple proposal

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Abstract

Revealed and stated preference techniques are widely used to assess willingness to pay (WTP) for non-market goods as input to public and private decision-making. However, individuals first have to satisfy subsistence needs through market good consumption, which affects their ability to pay. We provide a methodological framework and derive a simple ex post adjustment factor to account for this effect. We quantify its impacts on the WTP for non-market goods and the ranking of projects theoretically, numerically and empirically. This confirms that non-adjusted WTP tends to be plutocratic: the views of the richest-whatever they are-are more likely to impact decision-making, potentially leading to ranking reversal between projects. We also suggest that the subsistence needs-based adjustment factor we propose has a role to play in value transfer procedures. The overall goal is a better representation of the entire population's preferences with regard to non-market goods.

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  • Victor Champonnois & Olivier Chanel, 2021. "Accounting for subsistence needs in non-market valuation: A simple proposal," AMSE Working Papers 2142, Aix-Marseille School of Economics, France.
  • Handle: RePEc:aim:wpaimx:2142
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    1. Olivier Chanel & Pavitra Paul, 2022. "Do differences in brute luck influence preferences for redistribution in favour of the environment and health?," Palgrave Communications, Palgrave Macmillan, vol. 9(1), pages 1-9, December.

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    More about this item

    Keywords

    subsistence needs; adjustment factor; non-market valuation; value transfer; population's preferences;
    All these keywords.

    JEL classification:

    • D60 - Microeconomics - - Welfare Economics - - - General
    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects

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