Neoclassical Foundations for Nonmarket Benefits Estimation

All‐or‐nothing demands and start‐up costs for nonmarket goods are discussed within the framework of price discrimination models. We show that in an all‐or‐nothing bid situation, consumers will provide average rather than marginal values resulting in overstatement of consumers' surplus. Nonmarket goods are often provided under conditions which are exacerbated by start‐up costs. Empirical measurement of nonmarket demand can contain significant error if these concepts are not properly applied.