The Value of Public Goods in Altruistic Societies

Abstract

This thesis is concerned with the valuation of public goods through the elicitation of preferences from citizens in society. This thesis explores theoretically and empirically the impact of different preference sets on the value of a public good, specifically when preferences are extended beyond one’s own welfare. Three frames for eliciting preferences are considered: Consumer Frame 1, Consumer Frame 2, and the Citizen Frame. Consumer Frame 1 requires individuals to take a purely self-interested perspective. This represents the standard methodology. Consumer Frame 2 allows for altruistic preferences. The Citizen Frame, a novel methodology, places individuals behind a veil of ignorance based on Harsanyi (1953) to generate impersonal preferences from personal preferences. The frames are assessed for their impact on the societal value, individual values, and their appropriateness for cost-benefit analysis by respecting consumer sovereignty and satisfying the underlying preferences when aggregated. The contributions made in thesis are split into two parts. Part I models the three frames using a model of optimal provision based on Jones-Lee (1991) to assess the societal value and a model of cost-benefit analysis based on Bergstrom (2006) to assess the individual value and the costbenefit test. In Part II, two laboratory experiments are used to test certain hypotheses from the theoretical chapters. The results of the experiments support the findings of the theory. The findings of this thesis suggest that the use of Consumer Frame 1 in preference elicitation studies should be used with caution as they potentially violate consumer sovereignty. Whilst Consumer Frame 2 allows altruistic preferences into valuations and therefore respects consumer sovereignty, the values may not be compatible with the cost-benefit test. The Citizen Frame offers a novel methodology for individuals to consider both the distribution of benefits and costs to society and thus include preferences for distributive justice in their valuations.