DEPARTMENT OF ECONOMICS WORKING PAPER SERIES Falsifying the “Goodness” of Nonmarket Goods with Revealed Preference

Some assert that it is impossible to test preference restrictions against revealed preference. The “goodness” preference restriction simply assumes that one value of a nonmarket good is preferred over another other with any fixed commodity consumption. This paper uses a preference-theoretic methodology to show how goodness can be falsified by revealed preference for compensation-based welfare analysis. When goodness is not directly falsifiable, it is still possible to use revealed preference to set lower bounds on goodness that may be so implausible as to provide an indirect falsification of goodness. In addition to potential application of these techniques with real-world problems, the principal contribution of this paper is demonstrating that it is possible to test nonmarket good preference restrictions using only revealed preference. This paper also illustrates the possible contributions of preference-theoretic methodology in a literature that is dominated by the discussion of calculus-based techniques.