Benefit-Cost in a Benevolent Society

American Economic Review (Impact Factor: 2.69). 03/2006; 96(1):339-351. DOI: 10.1257/000282806776157623
Source: RePEc


How should benefit-cost analysis account for the value that benevolent individuals place on others' enjoyment of public goods? When adding up the benefits to be compared with costs, should we sum the private valuations, the altruistic valuations, or something else? This paper argues that private valuations are appropriate if concern for the well-being of others respects their private preferences. The discussion has implications for family decision-making, welfare economics, and the design of applied contingent valuation studies.

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Available from: Ted Bergstrom, Jan 07, 2015
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    • "That is, it is possible to fail to accept a good proposal (from a BCA point of view) using only selfish values. Bergstrom (2006) agrees with this conclusion. "
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    • "" A number of empirical economic studies have investigated the role of social preferences in voting (e.g., Deacon and Shapiro, 1975; Holmes, 1990; Shabman and Stephenson, 1992, 1994; Kotchen and Powers, 2006). Given the overwhelming evidence of pro-social behavior in bargaining, trust, reciprocity, public goods, and other games, it is not surprising that these studies have demonstrated deviations from pure self-interest in actual referenda: following terminology recently used by Bergstrom (2006), voters appear to be partly motivated by " sympathetic gains " obtained from others' enjoyment of public goods as well as " sympathetic losses " that each bears for the share of costs paid by others. However, the aggregated and anonymous data used in these studies preclude measuring the extent of the deviation from self-interest (Mueller, 1989), identifying the precise form that such social preferences take, or assessing the impact of those preferences on the desirability of using referenda as a public goods allocation mechanism. "
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    ABSTRACT: Public referenda are frequently used to determine the provision of public goods. As public programs have distributional consequences, a compelling question is what impact, if any, do social preferences have on voting behavior. This paper explores this issue using laboratory experiments wherein voting outcomes lead to a known distribution of net benefits across participants. Preferences are elicited using a novel Random Price Voting Mechanism (RPVM), which is more efficient in eliciting preferences than a dichotomous choice referendum but gives consistent results. Results suggest that social preferences, in particular a social efficiency motive, lead to economically meaningful deviations from selfish voting choices and increase the likelihood that welfare-enhancing programs are implemented.
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    • "Similarly, the results for the $2 subjects would be consistent with those voters getting positive utility from the gains of others. As Bergstrom (2006) reminds us " If we are to count the sympathetic gains each obtains from the other's enjoyment of the shared public good, then we should not forget also to count the sympathetic losses each bears from the share of its costs paid by the others " (p. 399). "
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    ABSTRACT: Recent papers show that in group decisions individuals have social preferences for efficiency and equity. However, the effect of social preferences on voting, the predominant funding mechanism for public goods, has not been thoroughly examined. This study investigates whether voting decisions are affected by the distribution of net benefits associated with a proposed public program using a new Random Price Voting Mechanism (RPVM). Theoretical and econometric analysis of experimental results presented in the paper suggest that observed differences from selfish voting are caused by a concern for social efficiency, and that voting may be more efficient than previously thought.
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