Measuring the value of public goods : a new approach with applications to recreational fishing and public utility pricing

142 Pages·2002·6.8 MB·English

by  Carter, David William

MEASURING THE VALUE OF PUBLIC GOODS: A NEW APPROACH WITH
APPLICATIONS TO RECREATIONAL FISHING AND PUBLIC UTILITY PRICING
By
DAVID WILLIAM CARTER
A DISSERTATION PRESENTED TO THE GRADUATE SCHOOL
OF THE UNIVERSITY OF FLORIDA IN PARTIAL FULFILLMENT
OF THE REQUIREMENTS FOR THE DEGREE OF
DOCTOR OF PHILOSOPHY
UNIVERSITY OF FLORIDA
2002
Copyright 2002
by
l)a\id W. Carter
ACKNOWLEDGMENTS
Several groups and individuals contributed to the development ofthe ideas in this
research. First and foremost, I would like to acknowledge the seemingly unending
support ofWally Milon and Clyde Kiker. Wally continued to help sculpt my high-flying
ideas into manageable research even after moving on from the University ofFlorida.
Clyde ensured that didn't loose my interest in high-flying ideas and provided much
needed encouragement throughout the ordeal. The other members ofmy Supervisory
Committee, especially Bob Emerson, are also to be commended for their timely
comments and expert guidance.
Next, I would like to implicate my fellow graduate students and the group in 1094,
especially Maxwell Mudhara, Bowei Xia, Mike Zylstra, Larry Perruso, Chris DeBodisco
and Tom Stevens. These individuals kindly filtered many ofmy early thoughts on this
research and provided excellent moral support. Chris DeBodisco, in particular, is to be
thanked for his insights and compassion for learning.
Last, but not least, I would like to acknowledge the support ofmy friends and
family for making the Ph.D. experience an enjoyable chapter in my life.
111
("ONTEMs
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page
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ACKN0W1 m
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LIST01 IAH1 is vi
is OF FIGURES vii
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ABSTRACT
viii
(II \piir
OVERVIEW
1 1
Revealed Preference Valuation of Public Goods 2
Alternative Approach to Revealed Preference Valuation 4
Potential Applications 4
Audience 5
2 REA Ml NT EFFECTS AS WELFARE MEASURES 6
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Introduction 6
Structural Approaches to Public Good Valuation 8
Welfare Measures 9
Structural Demand Approaches
1 1
Structural I tilit\ Approaches 15
Combined Structural Approaches and a Canonical Model 20
Critique of Structural Approaches 22
Treatment Effects Approach to Public Good Valuation 25
realment Effect Welfare Measures for Panel Data or Repeated Cross-Sections. 2S
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reatment Effect Welfare Measures tor Cross-Section Data 31
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Econometric Framework 34
reatment Effect Welfare Measures J7
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Discussion 44
APPLICATION rORECRJ VTIONA1 FISHING 46
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\\ elfare Measurement with Capital Expenditures 48
Structural Demand Approach 51
reatment Effects Approach 55
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Data 60
1\
Results 65
Travel Cost Model 65
Treatment Effects Models 68
Discussion 74
4 APPLICATION TO PUBLIC UTILITY PRICING 76
Price Perception and the Value ofPrice Information 77
Empirical Models 85
Water Demand Model 86
Treatment Effects Bill Model 91
Data 95
Results 99
Structural Demand Model 99
Treatment Effects Model 105
Discussion 110
SUMMARY
5 112
APPENDIX
MATHEMATICA© DERRIVATION OF THE NET UTILITY FUNCTION 115
REFERENCES
119
BIOGRAPHICAL SKETCH 129
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i.isi 01 S
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Table page
1 l tilu\ outcomes with activity choice and change combinations 16
2 Spending outcomes with public good use and change combinations 30
3 Sample means and standard deviations for rigs model variables 61
4 Replacement rules tor missing variable cost data 63
5 Spending included in the variable and capital fishing expenditures 64
6 Estimates for the Poisson-normal travel cost model vvith selectivity 67
7 Count model welfare analysis for loss ofrigs access 68
8 Annual variable expenditures treatment effects model results 69
9 Total annual expenditures treatment effects model results 71
10 Annual expenditure treatment effects and welfare estimates ofrig access 73
1 1 Utility outcomes with price knowledge and information change 82
2 Formulas for key model parameters 91
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3 Rate schedules in study area 97
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14 Summarv statistics for water demand data 98
5 Watei demand model estimation results 100
1
16 Estimates for kev water demand model parameters 103
17 Monthly bill treatment effects model results 106
15 Bill treatment effects and welfare estimates of price information 109
vi
LIST OF FIGURES
Figure page
1 The value ofa public good change with interdependence in demand space 12
2 The value ofa public good change with interdependence in utility space 17
3 Expenditure difference threshold 41
4 Value ofprice information: perceived price greater than actual price 84
5 Value ofprice information: perceived price less than actual price 84
vn
Abstract of Dissertation Presented to the Graduate School
ofthe l fniversit) ofFlorida in Partial Fulfillment ofthe
Requirements tor the Degree of Doctor ofPhilosophy
MEASURING Mil OF PUBLIC GOODS: ANEWAPPROACH WITH
V \l I I
APPLICA IONS TO RECREA K >\AI. ISI1ING AND PUBLIC UTILITY PRICING
1 I I
By
David William Carter
December 2002
Chair: J. Walter Milon
Cochair: Clyde P. Kiker
Department: Pood and Resource Economics
Program evaluation (PL) techniques are adapted to measure the value ofpublic
good access. The premise is that interventions in the supply ofa public good can be
considered "programs' where "use" is tantamount to participation or "treatment." Three
chapters (Chapters 2 through 4) explore this premise.
Chapter 2 compares the "treatment effects' approach (TEA) to conventional
revealed preference (RP) methods for valuing public good access. Program evaluation
techniques are adapted to derive access value from differences in related nonmarket
activity expenditures between actual and potential public good users. Unlike methods
such as the travel cost approach, this approach does not estimate a structural demand or
Utility model to derive welfare measures. Thus, the TEA avoids main ofthe wideb
recognized problems ofendogeneit) in RP models. A ke> insight is that alternative
COUnterfactual assumptions can be used to condition estimates ofthe demand for a public
good
Mil
Chapter 3 applies the TEA to measure the recreational fishing value ofGulfof
Mexico petroleum platforms. Those anglers who currently fish at these platforms are the
treatment group, while those who fish elsewhere are the controls. An econometric model
developed in Chapter 2 is used to obtain a measure ofthe expected value ofplatform
access. The measure is relatively comprehensive because the TEA readily incorporates
capital expenditures. Results from the TEA model are compared to those from a travel
cost model.
Chapter 4 examines the conservation value ofa program that informs public utility
customers about the price ofservice. An analytical model ofperceived price is
developed that can be used to assess the value ofprice information. The corresponding
empirical models are built around a dataset ofFlorida water customers that assigns
households to treatment and control groups based on whether or not they know the price.
The results from demand and treatment effects models are used to derive the expected
value ofprice information for an uninformed household. Importantly, the notion of
counterfactuals developed in Chapter 2 allows the welfare measures to be adjusted for the
possibility that price elasticities change once a household learns the price.
IX
CHAPTER
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<)\l KVII \\
he domain ofconsumer choice includes consumed commodities and market
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goods \ commodity is valued as a source ofsatisfaction (utility and/or as an input into
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the production ofa commodit) that yields satisfaction. A market good is a commodity
whose relative social value is given by its price in a forum ofexchange (i.e., a perfectl)
competitive market with no externalities). These commodities are excludable and rival,
that is. they are (locally) scarce and subject to competition in use. Given nonattenuated
property rights for a commodity, the competition over use privileges will establish a price
indicative of its relative value as a market good in a Pareto-efficient allocation (Randall
1987).
Commodities that are not market goods can be termed nonmarket goods. As
commodities, nonmarket goods have value, but the relative value ofadditional units
cannot be measured (directly) by an equilibrium market price. There are a number of
reasons win a commodit) will not be traded in a perfectly competitive market, but for
present purposes the kc\ reason relates to its public good characteristics. Briefly, a
public good is nonexclusive and or nonrival in consumption so that a price in use or trade
cannot be established because propert\ rights cannot be assigned. Thus, an important
difference between market and public goods for consumer choice is the absence ofa
consistent indicator of relative \alue or price for the latter.
I he lack ofprices for public goods means that other measures must be used to
evaluate the relative value ofchanges in the suppl) of these commodities. Such measures
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