Transcript Introduction to the Costs and Benefits of Environmental

Assessing Costs and Benefits of
Environmental Policies &
Regulations
Whose costs and benefits?
Recall cookbook: want to account for all
significant costs and benefits.
Also recall Tuolumne study – many
environmental costs excluded, costs of dam
still outweigh benefits (lesson: if you don’t
have to rely on non-use values, then don’t)
Important to include costs & benefits over
time – use NPV formulation (or E[NPV] if
uncertainty).
Types of values
Market values:
Commodities traded in
markets or values directly
reflected in markets
Usually from direct-use
Often “derived demand”
Recall, markets ignore
externalities; may
misrepresent public good
Non-market values
Commodities that
have value to
humans, but whose
value cannot be
measured within a
market.
Includes Use and
Non-Use Values
Use vs. non-use values
Use values
Value from
consumption of a good
Current use, expected
future use, possible
use
Direct health impacts
Non-health impacts
(e.g. smell)
Damage to
ecosystems: pollution
degrades performance
Non-use values
Measurement is
controversial
Existence value,
altruistic value, bequest
value
Examples
Market values
Air/water quality
1 mbf Douglas Fir
1 ton SOx in RECLAIM
1 ton halibut in Alaska
Red cockaded
woodpecker in south
Pharmaceutical
potential of natural
compounds
Non-market values
Sea otters on south
coast
Air/water quality
Strong swell off Coal
Oil Point
Oil spill off Spain
Yosemite Nat’l park
Golden trout in Sierras
Measuring demand
Revealed preference
Observe a real choice
in market; infer value
E.g. Value of living
near urban open
space: Compare
housing prices w/ and
w/o urban open space.
Hedonics, Travel Cost,
Household production
Stated preference
Ask people (survey)
how much they value
environmental goods
E.g. Would you
accept a $0.05
increase in gas price
to require doublehull oil tankers?
Contingent valuation
Example: Nat’l park fees
Yosemite National Park charges $20
entrance fee, 3 million visits.
Want to eliminate cars in the Valley to
improve recreational experience.
Want to  fee to pay for bus ($10 mil).
Will increase to $30 pay for bus?
Wrong calculation: $10*3 mil = $30 mil
Change in nat’l park entrance fee
$
Will a fee increase
from $20 to $30 pay
for the bus system?
DEFO-ABCO > $10 mil?
30 A
B
20 D
E
Demand
O
C
Q30
F
Q20
Q
Human health values
How estimate monetary value of changes in
health from environmental change?
2 steps: (1) environmental change to health
impact, (2) change in health to $$ [where
possible].
Distinguish between mortality (death),
morbidity (illness)
Often disaggregate according to: age, sex,
physical condition, etc…
Mortality
Crude mortality rate = # deaths per
time/relevant population…interpreted as
probability of dying.
How will change affect probability of dying?
In expectation, how many more people will
die (or how many fewer will die)
Total value = $/life * lives.
Lead in water: $2.5 million per death avoided,
2.5*622 = $1.6 billion.
Morbidity (sickness)
Chronic or acute, degree of impairment, type
of symptom
“restricted activity days”, “bed disability days”,
“work loss days”, “symptom days”
Clean Air Act: protect individuals from
adverse health effects.
Lead: $1 million/non-fatal heart attack,
$628/case reduced chance of hypertension
Benefits transfer approach
See Rosenberger & Loomis, 2000.
The application of existing information &
knowledge to new contexts
Useful when collecting primary data and
analysis is impractical (cost or time)
3 important features
1.
2.
3.
Policy context must be well-defined
Data must meet certain criteria
Study site and new site should correspond
Policy context
Identify extent and type of impacts
from proposed action
Identify affected population
Identify data needs of assessment
Type of measure, kind of value, degree of
uncertainty, etc.
Study site data requirements
Make sure study site data & analysis
technique are sound
Study site analysis contains details (for
comparison) of physical &
socioeconomic characteristics, & reports
statistics
Correspondence between sites
Similar expected change in resource
quality and quantity.
Markets in two sites are similar;
demographics are similar.
Condition and quality of environmental
good is similar.
Limitations of benefit transfer
Quality of original study
The more primary studies, the better.
Primary data vs. summary statistics
(may limit ability to conduct new
analysis).
Characteristics of sites may differ,
Assumptions made in original study that
do not apply.
Approaches to benefit transfer
Value transfer
Point estimate(s) from
study site
Identify change,
translate into physical
impact (e.g. use),
identify applicable
study sites, select
(range of) benefit
measures, calculate $
value.
Function transfer
Demand or benefits
function from study
site.
Identify change,
translate into physical
impact, identify
applicable study sties,
determine if demand
function available,
adapt demand (benefit)
function to fit new site.
Next 2 lectures
Revealed Preference
Hedonics
Travel Cost
Household Production
Stated Preference/
Constructed Markets
Contingent Valuation