Implementing Weak Complementarity

Abstract

The message from Chapter 3 is clear. To use revealed preference methods and only revealed preference methods to value changes in public goods, specifically changes in environmental quality, requires imposing some added restrictions on the individual’s decision problem. The most commonly employed restriction is weak complementarity. In this chapter we deal with an array of conceptual and empirical problems that arise in making the weak complementarity model of environmental valuation operational in a conventional demand setting. The first section considers how one might go about specifying demand functions or systems that incorporate prices, income and quality characteristics. Subsequent sections treat conceptual issues that arise when the weak complement is really a household-produced good. When this is true, time enters the problem in a number of ways, complicating both specification and welfare measurement. Finally we consider how to make conceptual and empirical sense of welfare evaluation when individuals do not have perfect information about quality changes.

Keywords

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