Valuing Public Goods: A Comparison of Survey and Hedonic Approaches

Although the theory of public goods has progressed rapidly since Paul Samuelson's seminal article, the empirical measurement of the value of (demand for) public goods only recently has received increased attention. Perhaps the best known and most widely accepted empirical approach has been the use of hedonic prices wherein, for example, it is assumed that either wages or housing values reflect spatial variation in public good characteristics of different communities. This indirect approach, based on theoretical work of Charles Tiebout, Kelvin Lancaster, Sherwin Rosen, and others, has proven quite successful. Among public goods or bads which have been valued using the hedonic approach are climate (I. Hoch), air pollution (Robert Anderson and Thomas Crocker; D. Harrison and D. Rubinfeld), social infrastructure (R. Cummings et al.) and other community characteristics such as noise level (J. Nelson), and ethnic composition (Ann Schnare). An alternative approach is to directly ask households or individuals to state their willingness to pay for public goods using survey techniques. Despite arguments that strategic bias will invalidate survey results, there exists the need for an alternative to the hedonic approach. As an example, consider the case of a remote and unique scenic vista, valuable to recreators, which is threatened by air pollution from a proposed coal fired plant-a typical situation in the western United States. Although it is possible, in principle, to impute the value of clean air and visibility from the relative decline in local visitation which might follow construction of a power plant, information on the value of visibility at the site is needed prior to construction for socially optimal decision making on plant location and pollution control equipment. The hedonic approach is unavailable both because the scarcity of local population-as opposed to recreators-makes use of wage or property value data impossible and because scenic vistas may themselves be unique. For these reasons, A. Randall et al. first applied survey methods for valuing visibility and other environmental effects of large coal fired power plants in the Four Corners region of New Mexico. Since this initial application, the survey approach has been widely used to value environmental commodities where market data for hedonic analysis is difficult to acquire (see, for example, Brookshire, Ives, and Schulze; Rowe et al.; Brookshire et al.). Other early attempts to value public goods using the survey approach include R. Davis, Peter Bohm, and J. Hammack and G. Brown. Although results of using the survey approach for estimating the value of public goods appear to be internally consistent, replicable and consistent with demand theory (see Schulze et al.), little work on external validation has been reported. Thus, the purpose of this paper is to report on an experiment designed to validate the survey approach by direct comparison to a hedonic property value study. The Los Angeles metropolitan area was chosen for the experiment because of the well-defined air pollution problem and be*Assistant professor, University of Wyoming, assistant professor, University of Missouri-Rolla, associate professor, University of Wyoming, and professor, University of Wyoming, respectively. The research reported here was funded under a grant, Methods Development for Assessing Air Pollution Control Benefits, from the U.S. Environmental Protection Agency. We would like to give special thanks to Alan Carlin and Shelby Gerking for their helpful suggestions and contributions. Additional helpful comments were received from A. Myrick Freeman III, John Tschirhart, and James Murdoch. All conclusions are of course our sole responsibility.