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Falsifying the �Goodness� of Nonmarket Goods with Revealed Preference

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  • David G. Brown

Abstract

Some assert that it is impossible to test preference restrictions against revealed preference. The �goodness� preference restriction simply assumes that one value of a nonmarket good is preferred over another other with any fixed commodity consumption. This paper uses a preference-theoretic methodology to show how goodness can be falsified by revealed preference for compensation-based welfare analysis. When goodness is not directly falsifiable, it is still possible to use revealed preference to set lower bounds on goodness that may be so implausible as to provide an indirect falsification of goodness. In addition to potential application of these techniques with real-world problems, the principal contribution of this paper is demonstrating that it is possible to test nonmarket good preference restrictions using only revealed preference. This paper also illustrates the possible contributions of preference-theoretic methodology in a literature that is dominated by the discussion of calculus-based techniques.

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  • David G. Brown, 2008. "Falsifying the �Goodness� of Nonmarket Goods with Revealed Preference," Departmental Working Papers 2008-08, Department of Economics, Louisiana State University.
    • Handle: RePEc:lsu:lsuwpp:2008-08
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    References listed on IDEAS

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    1. Udo Ebert, 1998. "Evaluation of Nonmarket Goods: Recovering Unconditional Preferences," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(2), pages 241-254.
    2. von Haefen, Roger H., 2007. "Empirical strategies for incorporating weak complementarity into consumer demand models," Journal of Environmental Economics and Management, Elsevier, vol. 54(1), pages 15-31, July.
    3. Herriges, Joseph A. & Kling, Catherine L. & Phaneuf, Daniel J., 2004. "What's the use? welfare estimates from revealed preference models when weak complementarity does not hold," Journal of Environmental Economics and Management, Elsevier, vol. 47(1), pages 55-70, January.
    4. Ebert, Udo, 2001. "A general approach to the evaluation of nonmarket goods," Resource and Energy Economics, Elsevier, vol. 23(4), pages 373-388, October.
    5. V. Kerry Smith & H. Spencer Banzhaf, 2004. "A Diagrammatic Exposition of Weak Complementarity and the Willig Condition," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(2), pages 455-466.
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