Valuing the environment:
Methods
ex ante vs. ex post
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ex ante valuation: desirability of proposed
action
ex post analysis: judge either the success or the
damage done by implemented actions
types of values / total WTP
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use: direct use of resource
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option
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can use it in the future
nonuse
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fish / timber harvested / water extracted
preserving something will never use
e.g., existence value
TWP = use + option + nonuse
classifying valuation methods
Methods Revealed pref
Stated pref
Direct
market price
contingent valuation
Indirect
travel cost
attribute-based models
hedonic property
conjoint analysis
hedonic wage
choice experiments
avoidance expenditures
contingent ranking
revealed preference
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based on actual observable choices
actual resource values can be inferred
how much did fisherman lose from oil spill?
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how much did catch decline?
what is value of lost consumer surplus? (area under
demand curve): market price
classifying valuation methods
Methods Revealed pref
Stated pref
Direct
market price
contingent valuation
Indirect
travel cost
attribute-based models
hedonic property
conjoint analysis
hedonic wage
choice experiments
avoidance expenditures
contingent ranking
stated preference
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used when value is not directly observable
value of northern spotted owl
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survey respondents for WTP to preserve this
species: contingent valuation
contingent valuation (direct, stated)
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major concern is survey bias
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strategic bias
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information bias
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little or no experience
starting point bias
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to influence an outcome
depends on definition of range
hypothetical bias
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contrived set of choices (no consequences)
classifying valuation methods
Methods Revealed pref
Stated pref
Direct
market price
contingent valuation
Indirect
travel cost
attribute-based models
hedonic property
conjoint analysis
hedonic wage
choice experiments
avoidance expenditures
contingent ranking
travel cost (indirect / revealed)
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infer the value of recreational resource using
info on how much visitors spent getting to a
site
construct demand curve for wtp for visitor day
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How far did they travel
Entrance fee
Account for different stops, etc.
classifying valuation methods
Methods Revealed pref
Stated pref
Direct
market price
contingent valuation
Indirect
travel cost
attribute-based models
hedonic property
conjoint analysis
hedonic wage
choice experiments
avoidance expenditures
contingent ranking
hedonic property value
(indirect / revealed)
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use multiple regression analysis to tease out
environmental component of value
use housing prices and break price into
components (# bedrooms, baths, lot size, crime
rates, school quality, air quality, etc)
measure marginal wtp for discrete changes in
each attribute
coqui frogs as a form of noise pollution
classifying valuation methods
Methods Revealed pref
Stated pref
Direct
market price
contingent valuation
Indirect
travel cost
attribute-based models
hedonic property
conjoint analysis
hedonic wage
choice experiments
avoidance expenditures
contingent ranking
hedonic wage
(indirect / revealed)
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similar idea, except isolate component of wage
that serves to compensate workers in risky
occupations for taking on the risk
high risk => high wage
Tobacco CEO’s
classifying valuation methods
Methods Revealed pref
Stated pref
Direct
market price
contingent valuation
Indirect
travel cost
attribute-based models
hedonic property
conjoint analysis
hedonic wage
choice experiments
avoidance expenditures
contingent ranking
averting / defensive expenditures
(indirect / revealed)
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those designed to reduce damage caused by
pollution by taking averting / defense action
air purifiers / bottled water
air conditioners to drown out coqui calls?
lower bound estimate
classifying valuation methods
Methods Revealed pref
Stated pref
Direct
market price
contingent valuation
Indirect
travel cost
attribute-based models
hedonic property
conjoint analysis
hedonic wage
choice experiments
avoidance expenditures
contingent ranking
attribute based models
(indirect / stated)
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useful when project options have multiple
levels of different attributes
survey based, but choosing different states of
the world
each state of the world has set of attributes and
a price
conjoint analysis:
how to manage a forest?
conjoint analysis:
sample questionnaire
benefit transfer
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transfers existing benefit estimates in new
study
used when gathering primary data too
expensive / too little time
make sure
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services being valued are comparable
relevant population is comparable
if not, are you able to make justifiable
adjustments?
issues in benefit estimation
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primary vs. secondary effects
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how far do you go?
tangible vs. intangible
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sensitivity analysis for intangibles (don’t ignore)
issues in cost estimation
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easier than benefits!
approaches: survey vs. engineering
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survey: ask how much
engineering: catalog possible technologies and
estimate cost of purchasing and implementing
them
combined approach often best
expected value
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much scientific uncertainty in future costs
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e.g., climate change, arrival of brown tree snakes
assess likelihood of possible outcomes (assign
probabilities)
expected present value of net benefits:
I
EPVNB   P PVNB
i
j
i
ij
cost-effectiveness analysis
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if bca unavailable or not reliable
set a policy target on some other basis than
benefits and costs
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max acceptable pollution level?
critical number of species to preserve?
cost effectiveness analysis finds lowest cost
means of accomplishing objective
impact analysis
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if both bca and cost effectiveness not possible
attempts to quantify consequences of various
actions
makes no attempt to convert all of
consequences into $$$
not necessarily optimal
leaves much up to policymaker