Integrating Rent and Demand Revelation in the Evaluation and Financing of Services

Location rent arises from differential access to pubic services and to privately supplied goods and services. Under some conditions, the net value provided by a service is equal to the increase in location rent that results from its provision. This chapter discusses these conditions and the implications of departures from them. If the conditions were generally met, one might propose that public services be evaluated and financed by the increases in rent that they generate. However, the conditions are generally not met. To accommodate this fact, the chapter develops a method of evaluating and financing public services that combines rent information with decisions made by the demand-revealing process. While any application of the demand-revealing process determines whether a proposed service satisfies a benefit-cost criterion, the incorporation of rent collection into the financing increases the likelihood of finding an acceptable way of providing an efficient service when a cost is attached to unintended redistribution. The chapter also discusses the ways in which the conclusions apply to privately provided goods and services.