Resources and Energy 10 (1988) 337-354. North-Holland QUALITY ADJUSTED PRICES AND WEAK COMPLEMENTARITY A New Method for Estimating the Demand for Environmental Services John P. HOEHN* Michigan State Unrcersity, East Lansing, MI 48824. USA Gideon FISHELSON Tel Asic Unioersity, Tel Auk. Israel Received July 1988 Valuation of site-specltic environmental services by the weak complementarity approach is often precluded by msuficient prxe variation. To circumvent this problem, demand and price are respecified in terms of quality adjusted prices. The resulting framework demonstrates that variation in environmental quality alone enables demand estimation. An application to a recreation site m ChIcago demonstrates the feasibility of the new method. Price elasticities estimated on quahty adJusted prices are not slgmlicantly different from those obtained in an ordmary demand analysis. 1. introduction The prospect of valuing environmental services through the demand for market goods is well established. Maler identifies ‘weak complementarity’ (1974, p. 183) as the basic sufficient condition. Weak complementarity implies that (1) the environmental service of interest is enjoyed jointly with a market good and (2) the individual is indifferent to changes in the environmental service when the quantity demanded of the market good is zero [Maler (1974)]. Independently, Bradford and Hildebrandt (1977) develop the weak complementarity concept for the case of multiple market goods. A drawback of the weak complementarity approach is that it often requires a substantial data base. For example, given J prices and K environmental services, the weak complementarity approach requires varia- tion across at least J+ K parameters in order to estimate an appropriate demand function.’ These data requirements make application difficult. *The study was initiated at the University of ChIcago and was partially supported by a cooperative agreement with U.S. EnvIronmental ProtectIon Agency. The authors zyxwvutsrqponmlkji would like to thank George Tolley and Alan Randall for constructive comments. ‘Procedures for Identifying demand may require additional data beyond that required for estimatmg the relation between quantities demanded, prices, and environmental services. 0165-0572/‘88/$3.50 ICI 1988. Elsevier Science Publishers B.V. (North-Holland)