1 - Introduction

Summary

Introduction

Our choices reflect our values. People reveal their relative values when they choose to spend an extra hour at work rather than at the opera; purchase more groceries rather than extra MP3s or drop extra change into a jar promoting a charity at the check-out line rather than buying a candy bar. Economists characterize the economic value of these choices by determining the rate at which a person is willing to trade one good or resource for another. This rate is captured in a person's maximum willingness to pay to purchase a good or in their minimum willingness to accept to sell a good. Usually, these economic values are revealed within the context of an active exchange institution like a market or auction with numerous buyers and sellers. In such exchange institutions, buyers buy when their willingness to pay exceeds price and sellers sell when their willingness to accept falls below price.

But, how do people value new goods and services not currently bought and sold in the marketplace? These non-market goods and services include new private goods like cigarettes that have been genetically modified to possess less nicotine and diet cherry vanilla Coke with lime as well as public goods like cleaner air in Santiago, Chile or biodiversity in Madagascar. No exchange institution exists for buyers and sellers to make bids and offers, which would reveal people's relative values for these non-market goods.