ESTIMATING DEMAND PRICES FOR PUBLIC GOODS FROM PRIVATE AGGREGATE DEMAND FUNCTIONS

This study combines the notion of weak complementarity between a public and private good with the theory of exact aggregation of individual demand functions to an aggregate demand functions. The notion of weak complementarity implies that when an individual consumes more of a private good, he or she is indifferent to changes in the quantity of the public good. Weak complementarity allows individual preferences for public goods to be derived from private demand functions.;The extended theory of exact aggregation allows the use of aggregate data on all private prices, all public good quantities, and aggregate index functions of income to be used in estimating an aggregate demand function. Using estimates derived from the system of private demand functions, demand prices for public goods can be derived.;Using the notion that a single private good is weakly complementary to a vector of public goods, the theory of exact aggregation is extended allowing public good quantities to enter individual private demand functions. The individual private demand functions consist of separate functions of private prices and public good quantities multiplied by index functions of income. The functions of prices and public good quantities are required to be the same for all individuals. The index functions of income are required to be summable to aggregate symmetric index functions of income. The integrability conditions impose additional structure on the allowable forms of individual demand functions. The translog indirect utility function, with public goods entering as parameters, is shown to generate individual private demand functions that can be exactly aggregated.