ABSTRACT

This chapter outlines the empirical and theoretical considerations in the choice of a means of specifying a community’s demand structure. Since the commodities and services included in the model contain the amenity services provided by environmental resources, some consideration is given the nature of the demand for such services. The J. R. Hicks-Alien equations relating utility functions to demand structure provide this information and a nonhomogeneous function proves to be the most flexible. Any model of community preferences must be able to accommodate a fairly diverse demand structure. The Hicks-Alien paper presents the interrelationships between the parameters describing an individual’s demand structure in the perfectly general case as well as under the assumption of integrability. The demand structure implied by a Cobb-Douglas utility specification is exceptionally rigid. Unitary income and price elasticities with no cross-effects are hardly characteristic of any set of three commodities in the “real world.”