Of Birds and Books: More on Hypothetical Referenda

Abstract

Recently Cummings et al. (1997) have reported a test of whether a hypothetical referendum using a majority rule is incentive compatible. Motivated in part by the National Oceanic and Atmospheric Administration’s (NOAA) initially proposed rules for using contingent valuation in natural resource damage assessments, these authors conclude that ‘‘results from our experiments, which involve a relatively simple good that is valued in a simple and controlled setting, suggest that this hypothesis [the incentive compatibility of a hypothetical referendum using majority rule] be rejected’’ (p. 619). This note questions the relevance of the authors’ results for the recommendations in the NOAA rules and, in the process, identifies the general difficulties posed in measuring the ‘‘amount’’ of a public good.1 The NOAA rules for contingent valuation were proposed by a distinguished panel of social scientists including two Nobel laureates in economics (Kenneth Arrow and Robert Solow) (Arrow et al. 1993). The guidelines were intended to enhance the reliability of contingent valuation estimates of willingness to pay for restoring injured natural resources as part of damage assessments required by the Comprehensive Environmental Response, Compensation, and