Transcript Measuring Environmental Benefits

Measuring Environmental
Benefits
In principle, benefits can be represented by
consumer surplus, or the area under the
demand curve:
Non-market good -- no “price”
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Two Approaches
• Willingness to pay (WTP): how much would
people be willing to pay for an increase in
environmental quality?
• Willingness to accept (WTA): how much would
people have to be paid in compensation in order
to induce them to accept a reduction in
environmental quality?
• In practice, WTP and WTA might be different,
with WTA ≥ WTP.
Averting Expenditure Method
• The value of an improvement in environmental quality
can be inferred from people’s expenditures on other
things (such as air conditioning, water filters, or
medical care) that help them cope with environmental
problems.
• Examples:
– Use of seat belts or smoke detectors measure the value of a
“statistical life saved”
– Purchases of bottled water measure the value of avoiding
water pollution
– Visits to the doctor or use of air conditioning measure the
value of avoiding respiratory illnesses
– Farmers’ adjustments in fertilizer use or area under cultivation
due to air pollution can measure the damages associated with
the pollution
Complementarity Method
• The value of an improvement in
environmental quality can be inferred from
people’s expenditures on complementary
goods, or goods that tend to be consumed
along with the environmental amenity.
• Example:
– Number of visits to a lake can be used to
measure the value of improved water quality
Travel-Cost Method
• The value of a public park or recreational
site can be inferred from data on the travel
costs people incur to visit the site.
• Example:
– Value of improved water quality
– Value of hunting permits
– Value of recreation sites
Hedonic Price (or Wage) Method
• The costs associated with pollution, proximity to a
landfill, or a health hazard might be reflected in the
property values of people living nearby, so
comparisons of property values between different
locations can provide evidence on environmental
damages.
• Alternatively, differences in wages between a risky
occupation and a less risky one can measure the
benefits of lower risks.
• Examples:
– Value of improved visibility
– Value of a location farther from a hazardous waste site
– Value of a “statistical life saved” due to reduced exposure to a
toxic substance
Contingent Valuation Method
• Economists conduct a carefully designed
survey to elicit information about people’s
valuations of an amenity or a change in
public policy.
• This is the only method that can measure
nonuse values (which could include
existence values or option values).
Contingent Valuation Method
• Examples:
– Value of avoiding respiratory illnesses
– Value of improved water quality, fish catch,
boating or swimming opportunities
– Value of improved visibility
– Nonuse value of clean air in the Grand
Canyon
– Value of preserving threatened species:
whooping cranes, bald eagles