《Gowdy 2016 land Economics》.pdf

The Revolution in Welfare Economics and Its Implications for Environmental Valuation and Policy John M. Gowdy ABSTRACT. Two research programs are brought assumptions known to be at odds with ac- together to contribute to the growing body of work tual human behavior. Particularly prob- on alternatives to standard welfare-based approaches lematic is the use of the concept of a Poten- to environmental valuation and policy. The first is tial Pareto Improvement (PPI) as one of the theoretical literature undermining the “new wel- the major economic tools for evaluating fare economics.” The second is the growing body alternative environmental policies. of work on endogenous preferences. Both these Two problems mar the welfare-based, research programs point to the necessity of inter- cost-benefit approach to environmental pol- personal comparisons in welfare economics. This paper focuses on (1) the theoretical flaws in the icy. The first is the intractable theoretical use of Potential Pareto Improvements as a policy difficulty of determining PPIs using the guide, (2) the “filtering” of expressed preferences Kaldor-Hicks criterion. The second prob- through the axioms of consumer choice, and (3) lem is that empirical estimates of PPIs us- the role of endogenous preferences in a reformula- ing cost benefit analysis (CBA) filter data tion of environmental valuation and policy. (JEL collected from actual respondents by forc- D61, Q28) ing them to fit the restrictive assumptions