Cost-Benefit Analysis as Market Simulation: A New Approach to the Problem of Anomalies in Environmental Evaluation
DownloadMost normative economics assumes that individuals have coherent preferences. This paper responds to growing evidence of failures of this assumption, particularly in the context of stated-preference methods widely used in environmental policy analysis. I propose a criterion of consumer sovereignty which does not presuppose preference coherence, and which is satisfied by competitive markets. I then propose an approach to cost-benefit analysis that attempts to simulate consumer sovereignty in situations of market failure. The key idea is to use valuations revealed ‘at the moment of consumption’. I argue that this principle is better implemented by hedonic pricing than by contingent valuation.
Authors
Robert Sugden
