Abstract
We develop an approach to valuing non-market goods using nonparametric revealed preference analysis. We show how nonparametric methods can also be used to bound the welfare effects of changes in the provision of a non-market good. Our main context is one in which the non-market good affects the marginal utility of consuming a related market good. This can also be framed as a shift in the taste for, or quality of, the market good. A systematic approach for incorporating quality/taste variation into a revealed preference framework for heterogeneous consumers is developed. This enables the recovery of the minimal variation in quality required to rationalise observed choices of related market goods. The variation in quality appears as a adjustment to the price for related market goods which then allows a revealed preference approach to bounding compensation measures of welfare effects to be applied.
Highlights
In this article, we use a common method of valuing non-market environmental goods whereby information about the valuation of a public good is extracted from its relationship with a marketed good
This paper has provided a theoretical and empirical framework for characterising environmental quality change using nonparametric revealed preference analysis
We have focused on the case in which the non-market good affects the marginal utility of consuming a related market good, which is framed as a shift in the taste for, or quality of, the market good
Summary
We use a common method of valuing non-market environmental goods whereby information about the valuation of a public good is extracted from its relationship with a marketed good. We develop a new approach to this general method that uses nonparametric revealed preference analysis We believe this could be a helpful approach for two main reasons: firstly it does not rely on particular functional forms for demand which have the potential to influence heavily the valuation estimates; secondly the marginal valuation of changes in the quality of the environmental good are allowed to differ in a very flexible way across consumers. Where the environmental good is not perfectly observed we develop on from the procedure for the rationed good case by noting that changes in the value of the indicators of the quality of the environmental good will still change the marginal utility of related marketed goods This will appear like a change in the tastes for those related goods and will show up as rejections of the nonparametric revealed preference conditions.
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
