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International Economics

Research Monograph

Valuing Public Goods Using the Life Satisfaction Approach

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  • Author LEE. Jongyearn
  • Date 2015/12/31
  • Series No. Research Monograph 2015-04
  • Language Korean
SUMMARY This study deals with two distinctive subjects in economic valuation. First, it attempts to better understand previous results and to inspect problems due to the false applications of the contingent valuation method (CVM), the most vastly used methodology in the field, by means of empirical reviews. Second, it conducts the ex ante evaluation of public goods using the life satisfaction approach (LSA) as the main objective of this study.

For the first task, it conducts three meta-anlayses using the survey results as well as estimation results that applied CVM. First, it attempts to identify the factors affecting the willingness to pay (WTP) estimated by CVM. Second, it examines the changes in WTP estimates by the choice of estimation models. Meanwhile, it compares the results from the structural model based on economic theory with those from non-structural one. Third, it attempts to derive quantitatively the changes in total value or total benefit due to the ways of aggregating WTPs estimated by CVM. The second and third meta-analyses are designed to emphasize the biases from incorrect applications of CVM.

Next, it conducts the empirical analysis using LSA. Apart from the convention of valuing environmental goods including air pollution, noise, scenery and so on that previous literature followed, this study attempts to value public goods in the ex ante sense. To make the comparisons possible, the target goods are selected two arboretums that have already been valued using CVM.

The results from the meta-analyses show the possibility of starting point bias and compliance bias in WTPs estimated by CVM. Also, it elicits the potential overestimation of WTPs and shortfalls of incorrect aggregation of WTPs estimated by CVM. Finally, the application of LSA reveals the results very close to what the previous research have suggested in terms of the influence of explanatory variables to life satisfaction responses, and it obtains comparable results to those by CVM in valuing arboretums.
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