the causes of preference reversal observed preference reversal cannot be adequately explained by violations of independence the reduction axiom or transitivity the primary cause of preference reversal is the failure of procedure invariance especially the overpricing of low probability high payoff bets this result violates regret theory and generalized nonindependent utility models preference reversal and a new reversal involving time preferences are explained by scale compatibility which implies that payoffs are weighted more heavily in pricing than in choice copyright 1990 by american economic association

property rights externalities and resource degradation locating the tragedy abstract resource degradation in the third world is largely driven by the demands of farm households for fuelwood and land for agriculture since resources are often controlled through indigenous systems of property the tragedy of the commons has been used to explain resource degradation as a result private property is suggested as a solution to resource degradation a dynamic model capable of examining household incentives for resource use under private and common property is developed results of the model reject the conventional wisdom that gives rise to the presumed optimality of private individual property in natural resources and the correlated indictment of group management regimes

labour force substitution and the effects of an ageing population 1986 labour force substitution and the effects of an ageing population applied economics vol 18 no 8 pp 901 913

responses to changes in domestic water tariff structures a latent class analysis on household level data from granada spain a problem that affects the estimation of water demand functions is the presence of unobserved individual heterogeneity which means that a common demand function is unlikely to represent the behavior of all users we implement latent class models to estimate water demand functions for four groups of users who are classified according to their unobservable preferences this more flexible approach makes it possible to distinguish four different response patterns to changes in the drivers of water use including different price elasticities these results should be of particular interest to regulators who would like to tailor water demand management policy to heterogeneous users our analysis exploits household level panel data on residential water demand and consumers characteristics obtained by combining information from a survey of 1 465 domestic users in the city of granada and bimonthly price and consumption data supplied by this city s water supplier from the period 2009 2011

valuing reduced morbidity a household production approach individuals frequently apply a household technology to combine public and private goods in the production of nonmarket commodities for final consumption hori 9 demonstrates that in these situations market prices of private goods together with production function parameters may encode enough information to value both public goods used as inputs and nonmarket final consumption commodities although this valuation methodology is objective and market based it seldom has been applied for three reasons first underlying technical relations either are unknown or data needed to estimate them are unavailable second even if relevant technical information is at hand the consumer s budget surface in commodity space may not be differentiable when joint production and other complicating factors are present as a consequence the commodity bundle chosen is consistent with an infinite number of marginal rates of substitution and values of public goods and nonmarket commodities remain unknown third joint production and nonconstant returns to scale also pose serious difficulties when taking the closely related valuation approach of estimating the area behind demand curves for private good inputs and final consumption commodities 2 this paper presents a unique application of the household production approach to valuing public goods and nonmarket commodities which allows for certain types of joint production and addresses key problems identified by previous authors technical relationships are estimated between health attributes private goods and air quality data used in the analysis are drawn from a special survey designed to implement the household production approach econometric estimates allow for censored dependent variables and cross equation error correlations in panel data using tobit models with individual specific variance components key results are 1 attempts

measuring poverty in a growing world or measuring growth in a poor world the extent to which growth reduces global poverty has been disputed for 30 years although there are better data than ever before controversies are not resolved a major problem is that consumption measured from household surveys which is used to measure poverty grows less rapidly than consumption measured in national accounts in the world as a whole and in large countries particularly india china and the united states in consequence measured poverty has fallen less rapidly than appears warranted by measured growth in poor countries one plausible cause is that richer households are less likely to participate in surveys but growth in the national accounts is also upward biased and consumption in the national accounts contains large and rapidly growing items that are not consumed by the poor and not included in surveys so it is possible for consumption of the poor to grow less rapidly than national consumption without any increase in measured inequality current statistical procedures in poor

welfare evaluation and the cost of living index in the household production model the household production model provides a new framework for the theory of the household and most applications have focused on its implications for market and nonmarket behavior in this paper i examine the consequences of the new home economics for welfare analysis and in particular for the cost of living index in the household production framework market goods are combined with time to produce commodities these commodities rather than the market goods are the arguments of the household s preference ordering the demand for goods and time is a derived demand since goods are not desired for their own sake but only as inputs into the production of commodities this paper is an analysis of the implications of the household production model for welfare evaluation not a critique of the model hence it accepts the fundamental distinction between goods and commodities and assumes that commodities as well as goods are observable and measurable 2 the distinction between technology and tastes follows unambiguously from that between goods and commodities in orthodox demand theory the household s preference ordering is defined over the goods space and welfare analysis is based on those preferences the cost ofliving index is defined as the ratio of the minimum expenditures required to attain a particular indifference curve of this preference ordering under two price regimes in the household production model the preference ordering over the commodity space provides a corresponding basis for welfare evaluation one way to extend the notion of the cost of living index to the new framework is to define it as the ratio of the minimum expenditures required to attain a par

risk perception in psychology and economics abstract the concept of rationality has been basic to most economic analysis its content has been successively refined over the generations as applied to the static world of certainty it has turned out to be a weak hypothesis not easily refuted and therefore not very useful as an explanation though not literally a tautology but recent decades have seen the development of stronger versions applied to a world in which time and uncertainty are real among its most important manifestations have been criteria for consistency in allocation over time the expected utility hypothesis of behavior under uncertainty and what may be termed the bayesian hypothesis for learning that is the consistent use of conditional probabilities for changing beliefs on the basis of new information these hypotheses have been used widely in offering explanations of empirically observed behavior though as not infrequently in economics the theoretical development has gone much further than the empirical implementation these hypotheses have also been used increasingly in normative analysis as a component of benefit cost studies therefore frequently referred to as benefit risk studies the value of reducing mortality rates from diseases for example has been studied by assuming that choice of occupations is made inter alia by comparing wage differences with mortality differences

an investigation of the rationality of consumer valuations of multiple health risks after developing a conceptual analysis of consumer valuation of multiple risks we explore both economic and cognitive hypotheses regarding individual risk taking using a sample of over 1 500 consumers our study ascertains risk dollar tradeoffs for the risks associated with using an insecticide and a toilet bowl cleaner we observe the expected positive valuation of risk reductions and find empirical support for a diminishing in the valuation of risk reduction as the extent of the risk reduction increases we also find evidence of certainty premiums for the total elimination of one risk but no strong evidence of additional certainty premiums for the elimination of multiple risks strong reference risk effects are evident as increases in risk were valued much more greatly than were decreases

signals or noise explaining the variation in recreation benefit estimates this paper uses meta analysis to summarize the benefit estimates derived from travel cost recreation demand models after reviewing approximately 200 published and unpublished studies prepared from 1970 to 1986 77 were found to report either consumer surplus estimates or sufficient information to derive them using these estimates of the consumer surplus per unit of use from each study it was possible to evaluate the influence of variables describing the site characteristics the activities undertaken at each site the behavioral assumptions and the specification decisions the findings provide clear support for using econometric methods to summarize results from diverse empirical studies they highlight the important research issues in model development and offer a consistency check to the procedures used in benefit transfer analyses for policy evaluations

ranking income distributions a large variety of policy questions involve choices between social states and a consequent ordering of the feasible alternatives when these social states are related to the levels of welfare experienced by individuals or households two central issues stand out in determining the relative desirability of different social outcomes one of these is the essentially positive exercise of achieving comparability between households with different characteristics such as composition or preferences operating in different environments for example facing different price structures the other concerns the normative judgments implicit in the evaluation of alternative allocations of resourcesthe emphasis placed on inequality between households and the extent to which greater inequality can be compensated by higher average living standards this paper focuses on the second of these issues and in doing so we abstract from the problem of household comparability by considering a population of n households identical in all respects except for their incomes the question of ordering social states then becomes one of ranking income distributions over a group of anonymous households or individuals borrowing the usual assumptions imposed on consumer preferences we may suppose that a social ordering of income distributions can be represented by a welfare function 2

major oecd country industrial sector interfuel substitution estimates 1960 1979 abstract a range of static and dynamic translog based expenditure shares models are estimated for non energy producing industrial sectors of the major seven countries of the oecd area sectoral energy volume and fuel efficiency bias variables are shown to be significant over and above individual prices in explaining individual fuel expenditure shares statistically significant own price and cross price elasticities of demand are presented for individual countries with some magnitudes varying considerably across alternative model specifications

growth still is good for the poor incomes in the poorest two quintiles on average increase at the same rate as overall average incomes this is because in a global dataset spanning 118 countries over the past four decades changes in the share of income of the poorest quintiles are generally small and uncorrelated with changes in average income the variation in changes in quintile shares is also small relative to the variation in growth in average incomes implying that the latter accounts for most of the variation in income growth in the poorest quintiles these findings hold across most regions and time periods and when conditioning on a variety of country level factors that may matter for growth and inequality changes this evidence confirms the central importance of economic growth for poverty reduction and illustrates the difficulty of identifying specific macroeconomic policies that are significantly associated with the relative growth rates of those in the poorest quintiles

immigrant earnings differentials and birth year effects for men in canada post war 1972 this paper investigates immigrant earnings differentials for males in canada and how these earnings have changed over time leading up to 1972 with workers year of birth the paper uses the 1973 job mobility survey which contains a direct measure of work experience reported independent of age thus using age as a birth year index it is found that cross sectional earnings differentials of immigrant men have widened since the later 1960s relative to those of native born workers summary in fre excerpt

the developing world is poorer than we thought but no less successful in the fight against poverty a new data set on national poverty lines is combined with new price data and almost 700 household surveys to estimate absolute poverty measures for the developing world we find that 25 of the population lived in poverty in 2005 as judged by what poverty typically means in the world s poorest countries this is higher than past estimates substantial overall progress is still indicated the corresponding poverty rate was 52 in 1981 but progress was very uneven across regions the trends over time and regional profile are robust to various changes in methodology though precise counts are more sensitive

drinking and academic performance in high school i investigate the extent to which negative alcohol use coefficients in grade point average regressions reflect unobserved heterogeneity rather than direct effects of drinking using 2001 and 2003 youth risk behaviour survey data on high school students results illustrate that omitted factors are quite important drinking coefficient magnitudes fall substantially in regressions that control for risk and time preference mental health self esteem and consumption of other addictive substances moreover the impact of binge drinking is negligible for students who are less risk averse heavily discount the future or use other drugs however effects that remain significant after accounting for unobserved heterogeneity and are relatively large for risk averse future oriented and drug free students suggest that binge drinking might slightly worsen academic performance consistent with this the relationship between grades and drinking without binging is small and insignificant on the extensive margin and posi

exact consumer s surplus and deadweight loss consumer s surplus is a widely used tool in applied welfare economics both economic theorists and cost benefit analysis often use consumer s surplus despite its somewhat dubious reputation the basic idea is to evaluate the value to a consumer or his willingness to pay for a change in price of a good from say pricep to pricep because price changes affect consumer welfare an evaluation of this effect is often a key input to public policy decisions yet consumer s surplus is probably the most controversial of widely used economic concepts both paul samuelson and ian little conclude that the economics profession would be better off without it it is my feeling of the situation that substantial agreement exists on the correct quantities to be measured the amount the consumer would pay or would need to be paid to be just as well off after the price change as he was before the price change the quantities correspond to john hicks compensating variation measures an alternative measure which takes ex post price change utility as the basis of comparison is hicks equivalent variation the controversy arises in the measurement of these quantities the usual measurement procedure is to use the area to the left of the marshallian market demand curve between two price levels jules dupuit originated this measure of welfare change and alfred marshall and hicks derived appropriate conditions for its use the primary condition for the area to the left of the demand curve to correspond to the compensating variation is to have constant marginal utility of income marshall gave this condition and if it holds the same quantity will be derived as the area to the left of the compensated hicksian demand curve this area to the left of the compensated demand curve is exactly what the compensating variation and equivalent variation measure thus the constant marginal utility of income is a sufficient condition for marshallian consumer s surplus to be equal to hicks consumer s surplus in this case arnold harberger s plea to use the welfare triangle as one half times the product of the price change times the quantity change to measure deadweight loss corresponds to the correct theoretical amount of welfare change in a recent paper robert willig derives bounds for the percentage difference between the correct measure of either the compensating or equivalent variation and the marshallian measure derived form the market demand curve his bounds which depend on the income elasticity of demand for the single good in the region of price change being considered as well as the proportion of the consumer s income spent on the good demonstrate that the marshallian consumer s surplus is often a good approximation to hicks consumer s surplus the fact that the proportion of the consumer s income spent matters as well as the income elasticity was first pointed out by harold hotelling willig contends that the approximation error will be less than the errors involved in estimating the demand curve thus he hopes to remove the need for apology that applied economists often need to give to theorists who remark on the inappropriateness of using marshallian consumer s surplus to measure welfare change however in this paper i show that for the case primarily considered by willig of a single price change which is also the situation in which consumer s surplus is often used in applied work no approximation is necessary professor of economics massachusetts institute of technology and research associate national bureau of economic research i would like to thank peter diamond erwin diewert daniel mcfadden robert merton robert solow hal varian joel yellin and the referees for help and comments research support from the national science foundation is acknowledged the reason that we still have two rather than one of samuelson s six measures of consumer s surplus arises from an index number problem of the correct basis for the welfare comparison i will give both measures but plan to concentrate on the compensating variation

hedonic onsight cost model of recreation demand for many recreational activities onsite pecuniary costs can be a significant portion of the cost of a recreational trip onsite expenditures however often depend upon endogenous quality choices made by the household we formulate a recreation demand model that formally accounts for household selection of quality of onsite time household behavior is constrained by income prices and the onsite hedonic price schedule assuming complete optimization a reduced form marshallian demand curve for recreation trips still results and a specialized version of roy s identity provides a basis for welfare analysis instrumenting for endogenous quality choices does not improve demand estimation

endogeneity of risk perceptions in averting behavior models this paper examines the relationship between averting expenditures choices and perceived health risks models in the literature often employ risk perceptions as explanatory variables without addressing the potential endogeneity of the perceived risk we examine the implications of ignoring endogeneity in this context using an application to both drinking water choices and expenditures and perceived health risks our data are from an internet based cross canada survey that employs a novel interactive risk ladder to elicit mortality risk perceptions relating to water we employ two fundamentally different methods to assess the impact of risk perceptions on behavior an analysis of expenditures on alternate water sources and a model of proportional choice of water sources results suggest the presence of averting behavior with respect to perceived mortality risks and that the estimated effect of water risks is greater than 3 times higher when using approaches that correct for endogeneity compared to models that do not

when is growth pro poor evidence from a panel of countries abstract growth is pro poor if the poverty measure of interest falls according to this definition there are three potential sources of pro poor growth a a high growth rate of average incomes b a high sensitivity of poverty to growth in average incomes and c a poverty reducing pattern of growth in relative incomes i empirically decompose changes in poverty in a sample of developing countries during the 1980s and 1990s into these three components in the medium to long run most of the variation in changes in poverty can be attributed to growth in average incomes suggesting that policies and institutions that promote broad based growth should be central to the pro poor growth agenda most of the remainder of the variation in changes in poverty is due to poverty reducing patterns of growth in relative incomes rather than differences in the sensitivity of poverty to growth in average incomes cross country evidence provides relatively little guidance as to the policies and institutions that promote these other sources of pro poor growth

welfare measurement in the household production framework the household production approach to consumer behavior developed from the work of gary becker william gorman and kelvin lancaster has considerable descriptive appeal in modelling the decisions of households the approach derives from the observation that households frequently purchase market goods that do not yield utility directly but are combined to produce commodity service flows which the household values thus observed behavior is determined by household production technology as well as by tastes the advantage of this distinction is that we can pose reasonable hypotheses about characteristics of technology though we rarely possess useful a priori information regarding tastes the putative advantages of the household production approach are questioned on empirical and conceptual grounds by robert pollak and michael wachter 1975 they show that jointness in production or nonconstant returns to scale cause implicit commodity prices to depend on both tastes and technology raising serious econometric difficulties in the estimation of commodity demand functions in addition since commodity prices become functions of the commodity bundle consumed the analogy to traditional demand theory breaks down joint production occurs when a good enters several production processes simultaneously or equivalently when a good in one production process also enters directly into the individual s utility function the most common example is time which provides the context for all production processes and is often associated with the production of several commodities simultaneously since joint production in the household is likely to be pervasive the critique by pollak and wachter cannot be ignored in response to the comment by william barnett pollak and wachter 1977 suggest dispensing with the notion of commodity prices and treating the demand for commodities as a function of goods prices this approach confounds tastes and technology but it eliminates the troublesome concept of commodity prices as parameters when in fact they are likely to be endogenous in this paper we show that results from positive analysis such as the critique by pollak and wachter have implications for the use of the household production framework for welfare analysis the household production function approach has had considerable appeal for measuring welfare effects of public actions in the environmental and natural resource areas gardner brown john charbonneau and michael hay elizabeth wilman yet traditional approaches to welfare measurement are frequently inapplicable we argue that welfare measurement in this framework is complicated by the difficulties of unravelling tastes and technology we extend pollak and wachter s results by demonstrating that marshallian demand functions for commodities cannot be uniquely defined thus marshallian functions cannot be used to derive exact compensated functions in the manner of jerry hausman and of george mckenzie and i f pearce nor can compensating and equivalent variation measures be bounded by marshallian consumer s surplus estimates following robert willig in fact duality results that normally allow us to move between marshallian and hicksian functions are not assistant and associate professors respectively department of agricultural and resource economics university of maryland college park md 20742 this paper is scientific article no a3404 contribution no 6476 of the maryland agricultural experiment station we wish to thank darrell hueth james opaluch v kerry smith and elizabeth wilman for comments on an earlier draft

what s the use welfare estimates from revealed preference models when weak complementarity does not hold abstract in this paper we consider the theoretical and empirical ramifications of welfare measurement in revealed preference models when weak complementarity does not hold in the context of a kuhn tucker model of recreation demand we show that while it is possible to estimate preferences that do not appear to exhibit weak complementarity the calculation of welfare measurements from these models requires a cardinal interpretation of preferences that cannot be tested furthermore we reiterate the under appreciated fact that even traditional use value estimates require a cardinal restriction on preferences that while often intuitive also cannot be tested we demonstrate empirically that the choice of restrictions can have significant ramifications as use value estimates can vary based on the assumed preference structure

reconsidering the economics of demand analysis with kinked budget constraints this paper has two objectives first we identify a problem with the ability of the discrete continuous choice framework and conditional demand functions to fully describe consumer preferences in the presence of kinked budget constraints second we propose and illustrate an alternative preference based method for estimating consumer responses to price changes under these conditions this framework recognizes that commitments to commodities such as pools or outdoor landscaping influence how water consumption responds to price changes as part of the long run consumption adjustments with microdata on household choices this approach could be used to design increasing block rate structures that recognize the differences in water consumption responses with these commitments

characteristics consumer surplus and new activities a proposed ski area abstract physical characteristics of activities and personal characteristics of the individual are incorporated into an expenditure function this function is used to define the compensating and equivalent variation for changes in the costs or physical characteristics of the existing activities or for a proposed activity as a function of its proposed characteristics and cost the model is used to estimate the demand for and the cvs and evs associated with the development of a colorado ski area these vary across skiers as a function of skiing ability value of time location of residence and skiing budget

willingness to pay for ozone control inferences from the demand for medical care abstract the paper applies a discrete choice version of the household production approach to the valuation of nonmarket goods willingness to pay for tropospheric ozone control is estimated using medical care demand under assumptions of input necessity and weak complementarity in example calculations individuals living in high ozone areas are willing to pay over 170 annually for an environment in which ozone concentrations never exceed 12 pphm willingness to pay figures are two to four times larger than medical expense savings caused by the same ozone reductions estimates obtained are compared with results of previous studies and proposed ozone control measures are discussed

nonuse values in benefit cost analysis benefit cost analysis bca is a pragmatic realization of the theory of welfare economics much of the research associated with bca has sought to expand the types of benefits that can be measured in dollar terms with this research there has been a progressive movement of goods and services from the set without measures usually designated as intangibles in bca terminology to the set with for example the recreational services provided by projects associated with dams for hydroelectric power or flood control were regarded as intangible until the development of the travel cost model for estimating the demand for outdoor recreation sites one of the current frontiers in bca research is associated with modeling and measuring nonuse benefits in contrast to the past efforts with intangibles research on this topic has remained controversial with few direct effects on the practice of applied welfare economics there are two principal reasons for this outcome first there has not been an accepted set of definitions for nonuse benefits and second applied studies with empirical estimates of nonuse benefits have until recently been non existent clearly these problems are related a consistent set of definitions is a necessary prerequisite for empirical implementation i will argue that consistent definitions for nonuse benefits have been elusive because the conceptual frameworks used in the literature to describe its primary components option value and existence values are not mutually consistent in the process of demonstrating this result i will describe the elements of a consistent framework for treating both use and nonuse benefits and apply it in explaining some of the problems with the available empirical estimates of nonuse benefits

property rights regimes in complex fishery management systems a choice experiment application the tonle sap wetland fishery was previously divided into 3 different management zones for conservation open access fishing and private fishing rights to the private fishing zone involved auctions for exclusive rights to temporarily designated plots this paper aims to explore the auction based system by investigating how this fishery management system affects different groups of small scale fishermen and how different characteristics of the fishing lots affect the bidding a choice experiment approach was used to model fishermen s choices in a hypothetical auction market by offering fishermen the choice between purchasing different potential fishing lots and a no purchase option implying fishing only in the communal fishing grounds the preferred latent class model with two segments of fishermen showed that the bidding behavior of the more privileged group out competes the other group irrespective of the lot characteristics this result suggests that it is unlikely that the redesign of the auction system itself would be an effective way of securing access to fishing resources for the two observed groups of fishermen this implies that open access fishing grounds and or other regulations may also be needed in future management as they serve an important role for the poorer segments

the impact of perceptions in averting decision models an application of the special regressor method to drinking water choices households monetary valuation of water quality is a prerequisite for efficient water resource management and the valuation of water quality protection policies individuals are commonly questioned about their perception of risk in valuation surveys based on stated preference methods and revealed preference methods such as averting behavior models these subjective and often discrete measures are commonly used to explain individuals actions to protect themselves against these risks perceptions appear as endogenous variables in traditional theoretical averting decision models but quite surprisingly endogeneity of perceived risk is not always controlled for in empirical studies in this article we argue that perceptions have to be treated as endogenous to averting decisions in order to produce accurate and reliable measures of households valuation of water quality improvements we present various binary averting decision models featuring an endogenous discrete variable such as risk perception in particular we compare the traditional bivariate probit model with the special regressor model which is less well known and relies on a different set of assumptions in the empirical illustration using household data from australia canada and france we study how the perceived health impacts of tap water affect a household s decision to drink water from the tap individuals perceptions are found to be endogenous and significant for all models but the estimated marginal effect is sensitive to the chosen model our empirical application also includes some tests of the special regressor estimator s sensitivity to underlying assumptions

formation of risk beliefs joint production and willingness to pay to avoid skin cancer this paper uses a survey of risk beliefs about skin cancer to provide new evidence on how people view risky situations empirical results presented are based on a measure of risk beliefs held at the time of the survey key findings are that risk beliefs about skin cancer account for factors including skin type complexion and sunlight exposure history also the connection between risk beliefs and willingness to pay is explored by using reservation prices for a sun protection product a new method for treating joint production in a household production framework is developed to support this analysis copyright 1996 by mit press

growth inequality and social welfare cross country evidence social welfare functions that assign weights to individuals based on their income levels can be used to document the relative importance of growth and inequality changes for changes in social welfare in a large panel of industrial and developing countries over the past 40 years most of the cross country and over time variation in changes in social welfare is due to changes in average incomes in contrast the changes in inequality observed during this period are on average much smaller than changes in average incomes are uncorrelated with changes in average incomes and have contributed relatively little to changes in social welfare

top incomes in the long run of history a recent literature has constructed top income shares time series over the long run for more than twenty countries using income tax statistics top incomes represent a small share of the population but a very significant share of total income and total taxes paid hence aggregate economic growth per capita and gini inequality indexes are sensitive to excluding or including top incomes we discuss the estimation methods and issues that arise when constructing top income share series including income definition and comparability over time and across countries tax avoidance and tax evasion we provide a summary of the key empirical findings most countries experience a dramatic drop in top income shares in the first part of the twentieth century in general due to shocks to top capital incomes during the wars and depression shocks top income shares do not recover in the immediate postwar decades however over the last thirty years top income shares have increased substantially in english speaking countries and in india and china but not in continental european countries or japan this increase is due in part to an unprecedented surge in top wage incomes as a result wage income comprises a larger fraction of top incomes than in the past finally we discuss the theoretical and empirical models that have been proposed to account for the facts and the main questions that remain open

activities in models of recreational demand scholars have taken divergent approaches to incorporating on site activities into their empirical specifications of site choice models we provide a framework for assessing this methodological heterogeneity through a model that explicitly allows individuals to choose both on site activities and site attributes this model not only conditions the marginal value of site attributes on the choice of an activity but also explicitly recovers the marginal rates of substitution across activities this eliminates previously unrecognized biases in the welfare analysis of changes in site attributes we test hypotheses generated by our model by comparing rival models of demand for access to beaches in costa rica

consumer s surplus without apology the purpose of this paper is to settle the controversy surrounding consumer s surplus and by so doing to validate its use as a tool of welfare economics i will show that observed consumer s surplus can be rigorously utilized to estimate the unobservable compensating and equivalent variations the correct theoretical measures of the welfare impact of changes in prices and income on an individual i derive precise upper and lower bounds on the percentage errors of approximating the compensating and equivalent variations with consumer s surplus these bounds can be explicitly calculated from observable demand data and it is clear that in most applications the error of approximation will be very small in fact the error will often be overshadowed by the errors involved in estimating the demand curve the results in no way depend upon arguments about the constancy of the marginal utility of income consequently this paper supplies specific empirical criteria which can replace the apologetic caveats frequently employed by those who presently apply consumer s surplus moreover the results imply that consumer s surplus is usually a very good approximation to the appropriate welfare measures to preview below i establish the validity of these rules of thumb for a

aid policies and growth comment in an extraordinarily influential paper craig burnside and david dollar 2000 p 847 find that aid has a positive impact on growth in developing countries with good fiscal monetary and trade policies but has little effect in the presence of poor policies this finding has enormous policy implications the burnside and dollar 2000 henceforth bd result provides a role and strategy for foreign aid if aid stimulates growth only in countries with good policies this suggests that 1 aid can promote economic growth and 2 it is crucial that foreign aid be distributed selectively to countries that have adopted sound policies international aid agencies public policy makers and the press quickly recognized the importance of the bd findings this paper reassesses the links between aid policy and growth using more data the bd data end in 1993 we reconstruct the bd database from original sources and thus 1 add additional countries and observations to the bd data set because new information has become available since they conducted their analyses and 2 extend the data through 1997 thus using the bd methodology we reexamine whether aid influences growth in the presence of good policies given our focus on retesting bd we do not summarize the vast pre bd literature on aid and growth we just note that there was a long and inconclusive literature that was hampered by limited data availability debates about the mechanisms through which aid would affect growth and disagreements over econometric specification see gustav f papanek 1972 robert cassen 1986 paul mosley et al 1987 peter boone 1994 1996 and henrik hansen and finn tarp s 2000 review since bd found that aid boosts growth in good policy environments there have been a number of other papers reacting to their results including paul collier and jan dehn 2001 carljohan dalgaard and hansen 2001 patrick guillaumont and lisa chauvet 2001 hansen and tarp 2001 robert lensink and howard white 2001 and collier and dollar 2002 these papers conduct useful variations and extensions some of which had already figured in the pre bd literature such as introducing additional control variables using nonlinear specifications etc some of these papers confirm the message that aid only works in a good policy environment while others drive out the aid policy interaction term with other variables this literature has the usual limitations of choosing a specification without clear guidance from theory which often means there are more plausible specifications than there are data points in the sample we differentiate our paper from these others by not deviating from the bd specification thus we do not test the robustness of the results to an unlimited number of variations but instead maintain the bd methodology this paper conducts a very simple robustness check by adding new data that were unavailable to bd thus we expand the sample used over their time period and extend the data from 1993 to 1997 easterly department of economics new york university 269 mercer street new york ny 10003 center for global development and national bureau of economic research e mail william easterly nyu edu levine department of finance carlson school of management university of minnesota 321 19th avenue south minneapolis mn 55455 and national bureau of economic research e mail rlevine csom umn edu roodman center for global development 1776 massachusetts avenue nw washington dc 20036 e mail droodman cgdev org we are grateful to craig burnside for supplying data and assisting in the reconstruction of previous results without holding him responsible in any way for the work in this paper thanks also to francis ng and prarthna dayal for generous assistance with updating the sachs warner openness variable and to three anonymous referees craig burnside and henrik hansen for helpful comments 1 see for instance the world bank 1994 2001 2002 the u k department for international development 2000 president george w bush s speech march 16 2002 the announcement by the white house on creating the millennium challenge corporation white house 2002 as well as a washington post editorial february 9 2002 a financial times column by alan beattie march 11 2002 and the economist march 16 2002

revealed preference for public goods the most serious problem for the modern theory of optimal public expenditure is that although it has to be based on some social welfare function individual preferences for public goods which constitute the elements of any individualistic social welfare function are hard to assess it is argued that since every individual can freely participate in the consumption of a public good there is an incentive for him to either underreport or overreport his preferences depending on how the reported preferences are used in the financing process of the public good i this argument will be correct if an individual s preferences for public goods can be expressed only directly in many cases however the consumption of a public good has some technical or objective relationship with the consumption of some private goods thus the benefit an individual derives from free highways depends on how much he spends on a car and gasoline even the benefit an individual derives from the judicial system depends on how much he spends to hire the services of lawyers also an individual can enjoy the same security police provide by hiring private guards and installing locks and so on in these cases if we know the technical relationships between the consumption of private goods and the consumption of public goods then from the market data relating the amounts of private goods bought to prices and the data on the existing amounts of public goods we might be able to infer i the amounts of final goods consumed say the number of trips from one point to another the degree of justice the security from robbery etc and ii their opportunity costs which the individual was willing to pay but if we succeed in this inference then all that remains to be done in order to find the individual s utility function will be to integrate back the relationship between the amounts of final goods consumed and their opportunity costs a trivial example can be provided by assuming that each public good is perfectly substitutable with a private good let yi be the quantity of the ith public good and xi be the quantity of a private good which is a perfect substitute for the ith public good then the benefit derived from the ith public good and its perfect substitute can be measured by xi yi suppose we have ascertained an individual consumer s demand functions for private good when all the yi are zero we know from the revealed preference theory that if these demand functions satisfy a certain condition namely the symmetry of the slutsky matrix then there exists a utility function unique up to a monotone transformation

altruism and environmental risks to health of parents and their children abstract this paper tests an equilibrium condition from a model that incorporates 1 altruism of parents toward their young children and 2 household production of latent health risks the model demonstrates that an altruistic parent s marginal rate of substitution between an environmental health risk to herself and to her child is equal to the ratio of marginal risk reduction costs econometric estimates support this prediction based on data from a stated preference survey involving 488 parents of children aged 3 12 years this outcome implies that parents reallocate family resources to at least partly offset the effectiveness of public programs that aim to reduce their children s environmental risks

on the impact of demographic change on economic growth and poverty abstract changing population age structures are shaping the trajectories of development in many countries bringing opportunities and challenges while aging has been a matter of concern for upper middle and high income economies rapid population growth is set to continue in the poorest countries over the coming decades at the same time these countries will see sustained increases in the working age shares of their population and these shifts have the potential to boost growth and reduce poverty this paper describes the main mechanisms through which demographic change may affect economic outcomes and estimates the association between changes in the share of working age population with per capita growth and poverty rate an increase in the working age population share and a reduction in the child dependency ratio are found to be associated with an increase in gross domestic product per capita growth with similarly positive effects on poverty reduction

joint production and averting expenditure measures of willingness to pay do water expenditures really measure avoidance costs a multinomial selection model of averting behavior in response to water contamination risks is estimatedfor georgia resid ents measures of non health relatedwater quality taste od or and appearance are incorporated into the model to account for joint production of utility and health the mod el examines the choice between bottled filteredtap andunfilteredtap water results of the estimation ind icatedthat perceivedrisk from tap water concern about water quality taste od or andappearance of tap water race andage are the most important d eterminants of bottled water selection information regarding current or prior problems with tap water perceived risk from tap water and income are the most important determinants of water filter selection adjusting for quality d ifferences between tap andbottledwater we show that averting costs estimates using bottledwater expend itures wouldleadto an overstatement of avoid ance costs by about 12

valuing environmental quality weak complementarity with sets of goods in practice it is frequently impossible to identify a single good which is a weak complement to an environmental amenity for which welfare measures are desired however a set of goods exhibiting this property sometimes exists e g water related recreational activities when the nonmarket good to be valued is water quality a set of weak complements is defined and implications for welfare measurement presented the proper welfare measure now involves evaluation of a line integral and simple additions of areas under demand curves will not always be correct however under certain econometric circumstances approximate welfare measures can be obtained from estimated functions

a leaky bucket in the real world estimating inequality aversion using survey data existing evidence of inequality aversion relies on data from class room experiments where subjects face hypothetical questions this paper estimates the magnitude of inequality aversion using representative survey data with questions related to the real economy situations the respondents face the results reveal that inequality aversion can be measured in a meaningful way using survey data but the magnitudes of the estimates depend dramatically on how inequality aversion is measured no matter how measured the revealed inequality aversion predicts opinions on a wide range of questions related to the welfare state such as the level of taxation tax progressivity and the structure of unemployment benefits

estimating elasticities of substitution by the cde production function an application to japanese manufacturing industries using time series data from japanese manufacturing industries the capital skill complementarity hypothesis is tested by estimating eslasticities from a cde production function the first component

an exogeneity test for a simultaneous equation tobit model with an application to labor supply a test of weak exogeneity in the simultaneous equation tobit model is proposed and illustrated using a female labour supply model estimated using cross section data the test statistic can be simply output from any standard tobit maximum likelihood package and is asymptotically efficient the procedure provides consistent estimators for the simultaneous tobit model whose asymptotic covariance matrix is a simple extension of the usual tobit formula we also provide the lagrange multiplier test of weak exogeneity this abstract was borrowed from another version of this item