Evaluation of Nonmarket Goods: Recovering Unconditional Preferences

Udo Ebert

American Journal of Agricultural Economics, 1998, vol. 80, issue 2, 241-254

Abstract: A new approach is proposed for the evaluation of nonmarket goods, starting from a complete or incomplete (conditional) demand system for market goods which is observable and depends on nonmarket goods. This information is not sufficient to recover the underlying preference ordering of the representative consumer. The central idea is to employ additional marginal willingness to pay functions for the nonmarket goods. Since they can be estimated either together with the demand system or in a separate step they are less arbitrary than the assumptions or hypotheses usually made. If the entire system is (weakly) integrable the underlying ordering and appropriate welfare measures can be derived. In this article I investigate the relationship between conditional and unconditional demand systems, present sufficient conditions for (weak) integrability, and demonstrate the practicability of the procedure proposed by means of three examples. Copyright 1998, Oxford University Press.

Date: 1998
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