2002 World Congress of Environmental and Resource Economists

By adapting Lancaster’s (1966) theory of consumption, we model individuals who hold preferences over both goods and the consumption activities in which they will deploy these goods. This enables a more refined identification of patterns of substitution across both goods and consumption activities, and provides a better characterization of the role of externalities in the act of consumption. We then empirically estimate consumer demand for an environmental public good in order to compare the results of this model with those of the traditional demand model. When a single good may be used in multiple consumption activities, the traditional model significantly mischaracterizes the utility function of individuals in a way that biases downward estimates of consumer surplus. We also demonstrate that this model enables economists to measure the welfare effects of regulations that affect consumption activities without directly affecting the underlying goods.



	Paper Title:	An Activity-Differentiated Theory Of Consumption And Application To Non-Market Environmental Goods
	Presenting Author:	J R Deshazo (University of California, Los Angeles)
	Coauthor 1:	Linwood H Pendleton
	Coauthor 2:
	Coauthor 3:
	Abstract:	By adapting Lancaster’s (1966) theory of consumption, we model individuals who hold preferences over both goods and the consumption activities in which they will deploy these goods. This enables a more refined identification of patterns of substitution across both goods and consumption activities, and provides a better characterization of the role of externalities in the act of consumption. We then empirically estimate consumer demand for an environmental public good in order to compare the results of this model with those of the traditional demand model. When a single good may be used in multiple consumption activities, the traditional model significantly mischaracterizes the utility function of individuals in a way that biases downward estimates of consumer surplus. We also demonstrate that this model enables economists to measure the welfare effects of regulations that affect consumption activities without directly affecting the underlying goods.
	Link to paper:	Not available

	Session / Day / Time	10F / Wednesday / 10:15 - 11:45 am

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