Valuation of public goods: an intertemporal mixed demand approach

H. Youn Kim (), Keith McLaren and Ka Wong ()
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H. Youn Kim: Western Kentucky University

Empirical Economics, 2020, vol. 59, issue 5, No 7, 2223-2253

Abstract: 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.

Keywords: An indirect utility function; Mixed demand system; Public goods; Efficiency condition; The Euler equation (search for similar items in EconPapers)
JEL-codes: D12 E21 H41 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s00181-019-01734-0

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