Accounting for subsistence needs in non-market valuation: a simple proposal

Victor Champonnois (1) , Olivier Chanel (2)

1 UMR G-EAU - Gestion de l'Eau, Acteurs, Usages
2 AMSE - Aix-Marseille Sciences Economiques

Revealed and stated preference techniques are widely used to assess willingness to pay (WTP) for non-market goods as input to public and private decision-making. However, individuals first have to satisfy subsistence needs through market good consumption, which affects their ability to pay. We provide a methodological framework and derive a simple ex post adjustment factor to account for this effect. We quantify its impacts on the WTP for non-market goods and the ranking of projects theoretically, numerically and empirically. This confirms that non-adjusted WTP tends to be plutocratic: the views of the richest – whatever they are – are more likely to impact decision-making, potentially leading to ranking reversal between projects. We also suggest that the subsistence needs-based adjustment factor we propose has a role to play in value transfer procedures. The overall goal is a better representation of the entire population’s preferences with regard to non-market goods.

Keywords: subsistence needs; adjustment factor; non-market valuation; value transfer; population’s preferences

Domains: Humanities and Social Sciences; Economics and Finance

Victor Champonnois, Olivier Chanel. Accounting for subsistence needs in non-market valuation: a simple proposal. Journal of Environmental Planning and Management, In press, pp.1-24. ⟨10.1080/09640568.2021.2008884⟩. ⟨hal-03620225⟩