Edited by Anna Alberini and James R. Kahn
Chapter 5: Hypothetical Preferences and Environmental Policy
Gregory Cooper 5.1 Introduction Economists measure preferences. When these preferences are over goods traded in markets, economists can measure them by studying consumer behavior. Many environmental goods, however, are not traded in markets. To study these, economists often resort to ‘hypothetical preferences’; that is, they create hypothetical markets and study consumer ‘behavior’ in the hypothetical scenarios. In this way economists are able to quantify the values people hold over a wide range of public environmental goods such as clean air and water, biodiversity, and a host of other environmental amenities. The process has been controversial, coming under ﬁre internally from other economists and externally from, among others, environmental philosophers. This chapter focuses on the external criticisms. As it turns out, many of these criticisms are aimed only indirectly at the special methodology involving hypothetical preferences. Instead, they raise issue with the larger project within which the strategies of contingent valuation and conjoint analysis are embedded – an approach to public policy that takes as its central goal the measurement of preferences in the population and the deployment of resources so as to maximally satisfy those preferences. As a result, a signiﬁcant part of this chapter, especially the ﬁrst sections, will be devoted to a discussion of this larger project. With these broader issues clariﬁed, the discussion then turns to the appeal to hypothetical preferences proper. Before proceeding, two points of clariﬁcation are in order. First, I focus on the preference satisfaction approach to public policy because I believe...
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