Measuring the Demand for Environmental Quality with Survey Data

Abstract

Individuals' willingness to pay for public goods and services is a central concept in the analyses of public expenditures and of the performance of political institutions. This concept has proved very difficult to measure, both in the aggregate and for different groups of individuals. This paper presents the results of an approach based on the use of survey data and statistical estimation to make these measurements. The advantages of this approach are the ability directly to relate the measure to the proper theoretical concept and to estimate individual demands so that analyses of the equity implications of alternative policies can be discussed. Application of these measures and of the additional information derived from the individual level estimations is discussed. W hat individuals are willing to pay for additional public goods is important information for economic and political analyses. The sum for all individuals is the proper estimation of the benefit to be derived from these additional goods and is central to any benefit/cost analysis of public programs (see Gramlich, 1981, pp. 17-27 and 68-75). The amount each individual is willing to pay, when compared to what he or she eventually does pay to provide these goods, becomes a direct measure of the income redistribution implied by the program and the way it is financed. Further, if one believes that the cost of public goods and services should be apportioned according to the benefits, willingness-to-pay information is vital to consideration of alternative financing and policy packages. Estimates of individual preferences also are important in many political