In
public choice theory, preference revelation (also preference revelation problem) is an area of study concerned with ascertaining the public's demand for
public goods
In economics, a public good (also referred to as a social good or collective good)Oakland, W. H. (1987). Theory of public goods. In Handbook of public economics (Vol. 2, pp. 485-535). Elsevier. is a good that is both non-excludable and non-riv ...
. 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
Contingent valuation is a survey-based economic technique for the valuation of non- market resources, such as environmental preservation or the impact of externalities like pollution. While these resources do give people utility, certain aspects ...
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Incentive compatibility
References
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Public choice theory
Public finance