An approach to the problem of estimating demand for public goods

Abstract

This article advances a procedure for estimating the demand for public goods (such as environmental quality) in the probably normal case where the authorities have no idea about the aggregate maximum willingness to pay in relation to costs nor about the willingness to pay in different consumer groups which are possible to distinguish from the taxation point of view. It is argued that the procedure advanced will avoid creating incentives to misrepresent individual preferences. Moreover, it conforms to the real world situation where an optimal payment or taxation distribution cannot be decided upon prior to estimation of demand. It is shown that both distribution and policy cost considerations make the optimal system of individual payments for a public good unknown at the time of the inquiry into the willingness to pay for this good. Hence, the procedure suggested in this paper both applies to a realistic policy situation and avoids simple strategies for misrepresentation of preferences.