The Assumption of Equal Marginal Utility of Income: How Much Does it Matter?
In most applied cost-benefit analyses, individual willingness to pay is aggregated without using explicit welfare weights. This can be justified by postulating a utilitarian social welfare function, along with the assumption of equal marginal utility of income for all individuals. However, since marginal utility is a cardinal concept, there is no generally accepted way to verify the plausibility of this latter assumption, nor its empirical importance. In this paper we use data from seven contingent valuation studies to illustrate that if one instead assumes equal marginal utility of the public good for all individuals, aggregate monetary benefit estimates change dramatically.
|Date of creation:||Nov 1998|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (+47) 21 09 00 00
Fax: (+47) 21 09 49 73
Web page: http://www.ssb.no/en/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bateman, Ian J. & Langford, Ian H. & Turner, R. Kerry & Willis, Ken G. & Garrod, Guy D., 1995.
"Elicitation and truncation effects in contingent valuation studies,"
Elsevier, vol. 12(2), pages 161-179, February.
- Langford, Ian H. & Bateman, Ian J., 1996. "Elicitation and truncation effects in contingent valuation studies," Ecological Economics, Elsevier, vol. 19(3), pages 265-267, December.
- repec:cup:cbooks:9780521447928 is not listed on IDEAS
- I J Bateman & I H Langford, 1997. "Budget-constraint, temporal, and question-ordering effects in contingent valuation studies," Environment and Planning A, Pion Ltd, London, vol. 29(7), pages 1215-1228, July.
- Bateman, Ian J, et al, 1997. "A Test of the Theory of Reference-Dependent Preferences," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 479-505, May.
- Hammond, Peter J, 1990.
"Theoretical Progress in Public Economics: A Provocative Assessment,"
Oxford Economic Papers,
Oxford University Press, vol. 42(1), pages 6-33, January.
- Hammond,Peter, 1988. "Theoretical progress in public economics: A provocative assessment," Discussion Paper Serie A 171, University of Bonn, Germany.
- Medin, Hege & Nyborg, Karine & Bateman, Ian, 2001.
"The assumption of equal marginal utility of income: how much does it matter?,"
Elsevier, vol. 36(3), pages 397-411, March.
- Hege Medin & Karine Nyborg & Ian Bateman, 1998. "The Assumption of Equal Marginal Utility of Income: How Much Does it Matter?," Discussion Papers 241, Research Department of Statistics Norway.
- Hammond, Peter J, 1979. "Straightforward Individual Incentive Compatibility in Large Economies," Review of Economic Studies, Wiley Blackwell, vol. 46(2), pages 263-82, April.
- van Praag, Bernard M. S., 1991. "Ordinal and cardinal utility : An integration of the two dimensions of the welfare concept," Journal of Econometrics, Elsevier, vol. 50(1-2), pages 69-89, October.
- John C. Harsanyi, 1955. "Cardinal Welfare, Individualistic Ethics, and Interpersonal Comparisons of Utility," Journal of Political Economy, University of Chicago Press, vol. 63, pages 309.
- Vatn Arild & Bromley Daniel W., 1994. "Choices without Prices without Apologies," Journal of Environmental Economics and Management, Elsevier, vol. 26(2), pages 129-148, March.
- Brekke, Kjell Arne, 1997. "The numeraire matters in cost-benefit analysis," Journal of Public Economics, Elsevier, vol. 64(1), pages 117-123, April.
- Bromley, Daniel W., 1990. "The ideology of efficiency: Searching for a theory of policy analysis," Journal of Environmental Economics and Management, Elsevier, vol. 19(1), pages 86-107, July.
- Carson, Richard T, 1999. "Contingent Valuation: A User's Guide," University of California at San Diego, Economics Working Paper Series qt2mw607q7, Department of Economics, UC San Diego.
- Unsworth, Robert E. & Bishop, Richard C., 1994. "Assessing natural resource damages using environmental annuities," Ecological Economics, Elsevier, vol. 11(1), pages 35-41, September.
- Nyborg, Karine, 2000. "Project analysis as input to public debate: Environmental valuation versus physical unit indicators," Ecological Economics, Elsevier, vol. 34(3), pages 393-408, September.
When requesting a correction, please mention this item's handle: RePEc:ssb:dispap:241. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (J Bruusgaard)
If references are entirely missing, you can add them using this form.