INDIRECT REVELATION OF THE DEMAND FOR PUBLIC GOODS: AN OVERVIEW AND CRITIQUE
| Date | 01 June 1979 |
| Published date | 01 June 1979 |
| Author | V. Kerry Smith |
| DOI | http://doi.org/10.1111/j.1467-9485.1979.tb00542.x |
Scottish
Journal
of
Political
Economy,
Vol.
26,
No.
2,
June
1979
Notes
and
Communications
INDIRECT REVELATION
OF
THE DEMAND
FOR PUBLIC GOODS: AN OVERVIEW
AND CRITIQUE
V.
KERRY
SMITH*
Resources for
the
Future
I
INTRODUCTION
Applied welfare economics is generally recognized as being concerned with
prescriptive hypotheses in that
it
is based on the premise that social inter-
vention for efficiency purposes involves actions which adjust for conditions of
market failure and in the process presumably increases the level of overall
welfare.l In order to gauge when such actions are warranted, economists
have directed considerable attention to the estimation of the marginal valua-
tions associated with those goods or services whose transactions are not
mediated on organized markets. This literature has, starting with the early
contributions of Tiebout
(1 956),
focused considerable attention on the use of
indirect mechanisms for evaluating individual preferences for nonmarketed
public goods. An early example of this tradition is found in Miiler’s
(1971,
1974)
analysis of the potential for using prior restrictions on individual utility
functions relating a private to a public good
so
as to infer the nature of the
demand for the public good. Unfortunately, this work has not been fully
appreciated.
In
fact, Bradford and Hildebrandt
(1 977)
have recently proposed
the same methods noting that their approachZ
:
.
.
.
exploits the selfish interest of each consumer to communicate in the
market true signals about preferences for private goods, thereby simul-
taneously providing the information needed about public goods as well.
The basic approach
is
to take advantage of the fact that the levels of public
goods enter as arguments of demand functions for private goods. By
observing the effect on demand schedules for private goods we can infer
the value consumers place on changes in the levels of public goods.3
*
This research
was
partially supported by the
U.S.
Forest Service and the Weyerhauser
Company Foundation through the Forest Economics and Policy Program
of
Resources
for the Future. The author is grateful to
A.
Myrick Freeman
IJI
for stimulating his interest
in this topic and for participation and extensive comments on this research.
In
addition,
thanks are due to Michael Bowes, Karl Goran Maler and Henry Peskin for helpful
comments
on
earlier drafts of this paper.
Krutilla
(1961)
described this view of benefit-cost analysis in these terms.
The
two
approaches are essentially equivalent. While Bradford and Hildebrandt
acknowledge the work of Maler, they
do
not seem to appreciate that he not
only
developed
the same methods they propose, but also dealt with the aggregation problem
(see
Maler,
1974,
pp.
116-125
and
178-191).
Date of receipt of final manuscript:
14
November
1978.
Bradford and Hildebrandt
(1977),
p.
113.
183
To continue reading
Request your trial