Table Of ContentMEASUREMENT IN PUBLIC CHOICE
In the same series
Edited by Peter Bohm and Allen V. Kneese
THE ECONOMICS OF ENVIRONMENT
Edited by Jan Herin, Assar Lindbeck and Johan Myhrman
FLEXIBLE EXCHANGE RATES AND STABILIZATION POLICY
Edited by Steinar Str0m and Lars Werin
TOPICS IN DISEQUILIBRIUM ECONOMICS
Edited by Steinar Str0m and Bjorn Thalberg
THE THEORETICAL CONTRIBUTIONS OF KNUT WICKSELL
MEASUREMENT IN PUBLIC CHOICE
Edited by
Steinar Stmm
University of Oslo
©The Scandinavian Journal of Economics 1979, 1981
Softcover reprint of the hardcover 1st edition 1981
All rights reserved. No part of this publication may be
reproduced or transmitted, in any form or by any means,
without permission
The proceedings were originally published in
The Scandinavian Journal of Economics, Vol. 81, 1979, No.2
First published in book form 1981 by
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ISBN 978-1-349-05092-5 ISBN 978-1-349-05090-1 (eBook)
DOI 10.1007/978-1-349-05090-1
CONTENTS
Introduction Steinar Str~Jm vii
I. Estimating Willingness to Pay for Public Goods
Estimating Willingness to Pay: Why and How? Peter Bohm 1
Hedonic PriceH, Property Values and Measuring Environmental Benefits:
A Survey of the IHsues A. Myrick .Freeman I I I 13
Estimates of Households' Preferences for Environmental Quality and other
Housing Characteristics from a System of Demand Equations
Melville L. McMillan 33
Observing Preferences for Educational Quality: The Weak Complimentarity
Approach Gregory U. Hildebrandt ami 'l'imothy D. Tregarthen 47
II. Public Good Decision Mechanisms
An Experimental Comparison of Three Public Good Decision Mechanisms
Vern on L. Smith 57
When Does Majority Rule Supply Public Goods Efficiently? Ted C. Bergstrom 75
On the Difficulty of Attaining Distributional Goals with Imperfect Information
about Consumers Jean-Jacques Laffont and Eric Maskin 86
III. Inequalities and Income Distribution
Professed Inequality Aversion and its Error Component Louis Gevers,
Herbert Glejser and Jean Rouyer 97
Optimization and Quantitative Assessment of Child Allowances Vidar Christiansen 103
Distributional Objectives Should Affect Taxes but not Program Choice or Design
Aanund Hylland and Richard Zeckhauser 123
Issues in the MeaHuremcnt of Poverty Amartya Sen 144
IV. Econometric Models of Government Behavior
Politometrics of Government Behavior in a Democracy Bruno S. Frey 167
Is There an Electional Cycle? A Comparative Study of National Accounts
Martin Paldam 182
The Effect of Unemployment, Inflation and Real Income Growth on Government
Popularity in Sweden Lars Jonung and Eskil Wadensjo 202
INTRODUCTION
Each year, The Scandinavian Journal of Economics produces a special issue in
which we gather Scandinavian and non-Scandinavian experts in a field of
economics of current interest. This issue is devoted to "Measurement in Public
Choice".
Public choice "can be defined as the economic study of nonmarket decision
making, or, simply the application of economics to political science".t There
is already a considerable amount of literature on the theory of public choice.
Until recently, however, little interest has been shown in testing empirically
the various hypotheses in this field of economic theory. The term "measure
ment" in the title indicates that the emphasis of this special issue is on problems
in the field of empirical public choice. The reason is that we felt there was a
need to bring the economic theory of public choice closer to application. All
of the articles are aimed at achieving this goal.
The contents of this issue are organized under the following headings:
I. Estimating Willingness to Pay for Public Goods
II. Public Good Decision Mechanisms
III. Inequalities and Income Distribution
IV. Econometric Models of Government Behavior.
Estimating the willingness to pay for public goods is discussed in Part I.
Peter Bohm's article treats a set of conditions which demand-revealing mech
anisms must pass in order to be politically acceptable for real-world applica
tions and real-world experiments. The paper by A. Myrick Freeman constitutes
a survey of the theoretical basis and assumptions required to estimate the
willingness to pay for environmental amenities such as air and water quality.
A similar problem is dealt with by Melville McMillan, who uses hedonic prices
in conjunction with a system of budget share equations to examine the demand
for environmental goods and housing characteristics. The topic of the last
paper in Part I, by Gregory Hildebrandt and Timothy Tregarlken, is the demand
for school quality and other local public goods. The efficient level of public
goods is estimated by means of a weak complementarity approach.
Part II deals with public good decision mechanisms. In the first paper,
Vernon Smith compares three public good mechanisms which differ with
1 Mueller, Dennis C., "Public Choice, A Survey", Journal of Economic !Merature XIV,
no. 2, 1976,p. 395.
VIII Measurement in public choice
respect to free-riding behavior. Ted Bergstrom's analysis is based on an article
by Bowen from 1943 and it is shown that Bowen's model can be extended to
demonstrate that majority voting and an appropriate tax system lead to Pareto
efficient provision of a public good. Using the solution concept of dominant
strategies, Jean-Jacques Laffont and Eric Maskin discuss how to implement
the solution obtained from maximizing a social welfare function which in
corporates ability to pay instead of willingness to pay. A negative conclusion
is reached, but it is suggested that other solution concepts would provide more
optimistic results, although these are not explored in the paper.
Inequalities and income distribution are the topic of Part III. Based on an
experiment using a sample of students, Louis Gevers, Herbert Glejser and Jean
Rouyer arrived at the very interesting conclusion that envy is highly common in
affluent income situations, but that inequality aversion predominates when the
income situation is closer to more actual circumstances. The next paper by
Vidar Christiansen focuses on the system of child allowances used in Norway
to redistribute income in favor of families with children below a certain age.
The welfare weights revealed to be implicit in the Norwegian system of in
direct taxation are discussed and, given these weights, it is shown that the
allocation of child allowances used in Norway is inconsistent with these re
vealed welfare weights. An issue frequently dealt with in the literature on
public finance concerns the distributional consequences of government ex
penditures. Under reasonable assumptions, Aanund Hylland & Richard Zeck
hauaer reach the conclusion that government projects should be designed
without taking any distributional aspect6 into account and that redistribution
should be accomplished solely through the tax system. An article on how to
measure poverty by Amartya Sen is also included in this section on inequality.
He argues that the measurement of poverty is not an ethical exercise, but
primarily a descriptive one. His discussion results in a poverty measure which
is a function of more common measures such as head-count ratios, income
gap ratios and the Gini coefficient. The main point is that rather than working
on one measure of poverty, classes of poverty measures can be defined in ac
cordance with what the measures are trying to capture.
The three papers in Part IV on econometric models of government behavior
focus on the question of what economic conditions determine the popularity
and re-election of governments. The macroeconomic indicators used in order
to explain popularity include unemployment, inflation, growth in real income,
etc. Bruno Frey views the government as having a monopolistic position and
maximizing its utility subject to re-election constraints. Voters evaluate a
government's performance with respect to the success of its economic policy.
Empirical research from several countries is presented. Martin Paldam raises
the question of an electional cycle. Based on comparative studies of national
accounts, he proves that a cycle does exist and finds that there is a policy
generated cycle in the OECD countries. The paper by Lars Jonung and Eskil
Measurement in public choice IX
Wa densjo begins with a survey of earlier Swedish studies on the relation be
tween economic conditions and election outcomes. On the basis of polls con
ducted during the period 1967-78, they show that unemployment and infla
tion have a strong influence on government popularity. The growth in real
income has a much smaller impact on the popularity of the ruling party.
The Editor
ESTIMATING Wlll.JNGNESS TO PAY:
WHY AND HOW?
Peter Bohm
University of Stockholm, Stockholm, Sweden
Abstract
The main purpose of this article is to advance a set of conditions which demand
revealing mechanisms must pass in order to be politically acceptable for real
world applications and-to begin with-for real-world experiments. Without such
non-laboratory experiments, real progress seems unlikely to take place in this
field. So far, there are few indications that these conditions can be met with respect
to the proposals made in the literature on public goods. One possible example of a
mechanism that meets the "acceptability" conditions is given here. In addition,
we present some comments as to why demand-revealing mechanisms constitute an
important economic problem, a view which has recently been questioned.
I. Introduction
Recent technical developments in two-way communication, e.g. using cable
TV, have made it possible to conceive of people participating directly in public
choice decisions in the near future. Whatever one's attitude to using present
and potential arrangements of this kind, it no longer seems to be the purely
technical or administrative problems that hold us back from involving people
in individual policy or managerial issues in the public sector. The main stumbling
blocks are-aside from the ideological aspects-the theoretical and empirical
problems connected with eliciting people's true preferences.
During the last decade considerable research efforts in public economics
have been devoted to problems of estimating demand for public goods. A
major part of this research activity has concerned finding a mechanism for
direct questioning of consumers whereby incentives to misrepresent preferences
would be absent. The existence of such incentives as a main obstacle to reve
aling consumer preferences for public goods has been part of conventional
wisdom since Paul Samuelson's well-known articles on the subject in the mid
fifties (1954). However, a presentation of the problem had already been made
by Wicksell (1896).
In this article an attempt is made to find out, from a more practical view-
