TAILIEUCHUNG - PUBLIC GOODS AND CONTINGENT VALUATION ROBERT SUGDEN

The crucial assumption that allows as to solve the two-good model relatively simply is the ability of the shoppers to combine purchases from two stores without incurring additional cost. This assumption can be justied for internet shopping or the cases when as Stahl, II (1989) puts it \Casual empiricism suggests that there is a non-negligible measure of consumers who seem to derive enjoyment from shopping itself". It is equivalent to an assumption of costless recall in the sequential search literature as essentially the captives nd out prices at two stores and are able to \go back" if one or both prices are lower at the rst shop. | 5 Public Goods and Contingent Valuation ROBERT SUGDEN . PUBLIC GOODS Many applications of the contingent valuation CV method are concerned with public goods. This chapter considers some of the special problems involved in eliciting preferences for such goods. In economic theory the distinction between public and private goods is clear-cut. What is now the standard definition of a public good derives from a classic paper only three pages long by Paul Samuelson 1954 this encapsulates some of the key elements of a tradition of public finance which can be traced back to Lindahl 1919 1958 and Wicksell 1896 1958 . The defining characteristic of a public good is that the same units of the good are consumed by or give utility to more than one individual. For example consider the benefits that the residents of a suburban area derive from an expanse of open-access woodland. One way of modelling these benefits would be to define a good open-access woodland measured in hectares. A typical resident we may assume prefers more of this good to less just as she prefers to have more rather than less of private consumption goods such as food and clothing. But there is a crucial difference between food and clothing on the one hand and the woodland on the other. In relation to food and clothing individual consumers are rivals if any given unit of one of these goods say a particular packet of frozen peas or a particular coat is consumed by one person then necessarily it is not consumed by another person. In contrast in the case of the woodland there is non-rivalry each hectare of woodland is giving benefits to many people simultaneously. Thus when we specify the utility functions of a set of individuals the level of provision of each public good is represented by a single variable which is an argument in each individuals utility function while the level of consumption of each private good is represented by a separate variable for each individual. This chapter was written as part of a

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