Public-good valuation and intra-family allocation |
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Authors: | Jon Strand |
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Institution: | (1) Fiscal Affairs Department, International Monetary Fund, Washington, DC 20431, USA;(2) University of Oslo, Oslo, Norway |
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Abstract: | I derive values of marginal changes in a public good for two-person households, measured alternatively by household member
i’s willingness to pay (WTP) for the good on behalf of the household, WTP
i
(H), or by the sum of individual WTP values across family members, WTP(C). Households are assumed to allocate their resources in efficient Nash bargains over private and common household goods.
WTP
i
(H) is then defined by trade-offs between the public good and the household good, and WTP(C) by trade-offs of between the public good and private goods. WTP
i
(H) is found to be higher (lower) than WTP(C) when member i has a relatively high (low) marginal valuation of the public good, but tends on average to equal WTP(C). As a consequence, individuals tend to represent households correctly on average when questioned about the household’s WTP
for a public good, even when they are purely selfish and answer truthfully. Adding all members’ WTP answers on behalf of the
household then leads to double counting. Pure and paternalistic altruism (the latter attached to consumption of the public
good) move each member’s WTP on behalf of the household closer to the true sum of individual WTP, but only paternalistic altruism
raises this sum.
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Keywords: | Public goods Willingness to pay Contingent valuation Intrafamily allocation Nash bargaining |
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