In
public choice theory
Public choice, or public choice theory, is "the use of economic tools to deal with traditional problems of political science".Gordon Tullock, 9872008, "public choice," ''The New Palgrave Dictionary of Economics''. . Its content includes the st ...
, preference revelation (also preference revelation problem) is an area of study concerned with ascertaining the public's demand for
public goods. According to some economists, if government planners do not have "full knowledge of individual preference functions", then it is likely that public goods will be under- or over-supplied.
When there is no market to induce people to reveal their subjective valuations, economists say that there is a “problem of preference revelation.” When perfect compensation is possible in principle, it may be impossible in fact because of the problem of preference revelation
Overview
Unlike private goods, public goods are
non-excludable and
non-rivalrous. This means that it is possible for people to benefit from a public good without having to help contribute to its production. Given that information about marginal benefits is available only from the individuals themselves, people have an incentive to under report their valuation for public goods.
See also
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Contingent valuation
*
Incentive compatibility
A mechanism is called incentive-compatible (IC) if every participant can achieve the best outcome to themselves just by acting according to their true preferences.
There are several different degrees of incentive-compatibility:
* The stronger d ...
References
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Public choice theory
Public finance