Economics 101: How to Measure Indirect Values Benjamin S. Rashford Agricultural and Applied Economics University of Wyoming

What is Value? The economic concept of value determined by peoples willingness to make tradeoffs… $ Quantity P* Producer Surplus Consumer Surplus Willingness to Pay Marginal Cost

Defining Non-market Values Use Value: Values associated with the tangible use of non-market goods and services (e.g. recreation, health benefits of clean air…)

Defining Non-market Values Non-use (“passive”) Value: Intrinsic values that are independent of use Existence (“preservation”) Value Bequest Value Altruistic Value Option Value

Methods for Measuring Non-Market Values Indirect Methods (revealed preference) Examine the market decisions people make regarding activities that are linked to non- market goods and services Direct Methods (stated preference) Elicit values directly from people using survey methods

Methods for Measuring Non-Market Values: Indirect Methods Hedonic Pricing Method people value the characteristics of goods air quality housing price People are willing to pay more for houses in areas with higher environmental quality

Hedonic Pricing Method (applied to wages) People may be willing to accept lower wages in areas with abundant ecosystem services Methods for Measuring Non-Market Values: Indirect Methods Income ($CN in 2000) $27-$54k $17-$22k $3-$13k $27-$54k $33-$17k

Methods for Measuring Non-Market Values: Indirect Methods Hedonic Pricing Method Application to forage land: Scenic amenities Environmental quality (wildlife habitat, water,…) Access to recreation

Methods for Measuring Non-Market Values: Indirect Methods Hedonic Pricing Method Advantages: Publicly available data Low cost Disadvantages: Large data sets Sophisticated statistical models

Methods for Measuring Non-Market Values: Indirect Methods Travel Cost Method Measures the value of resources associated with recreation

Methods for Measuring Non-Market Values: Indirect Methods Travel Cost Method 1. Ask visitors about their travel cost and number of trips 2. Estimate recreation demand  consumer surplus trips travel cost Estimated demand Value of recreation

Methods for Measuring Non-Market Values: Indirect Methods Travel Cost Method 3. Estimate demand for alternative site with higher quality resources 4. Non-market value = the additional surplus trips travel cost Demand with low quality Demand with high quality Non-market Value

Methods for Measuring Non-Market Values: Indirect Methods Travel Cost Method Advantages: Can be very specific (value or site) Disadvantages: Primary data collection ($ and time consuming) Sophisticated statistical models

Methods for Measuring Non-Market Values: Direct Methods Contingent ValuationConjoint Analysis Elicit values by directly asking people to state their willingness to pay for a non-market good WTP for a change in quality “Waterfowl habitat in ABC Census Division is currently highly degraded due to intensive row crop production. Waterfowl habitat could be enhanced by converting cropland to forage production. If 20% of the land were converted, waterfowl populations would increase by 1%. Would you be willing to pay an additional $10 per year in property taxes if the money was used to convert cropland to forage for the purpose of improving waterfowl habitat?

Methods for Measuring Non-Market Values: Direct Methods Contingent ValuationConjoint Analysis Elicit values by directly asking people to state their willingness to pay for a non-market good Select between alternative sets of characteristics Hunting trip A 1.Water level is below the vegetation line 2.You see 2 ducks per hour 3.Entrance fee = $5 Hunting trip B 1.Water level is above the vegetation line 2.You see 6 ducks per hour 3.Entrance fee = $11

Methods for Measuring Non-Market Values: Direct Methods Contingent Valuation and Conjoint Analysis Advantages: Can measure non-use values No secondary data required Disadvantages: Survey design Survey cost and time Stated vs. revealed preference

Methods for Measuring Non-Market Values: Benefits Transfer Uses the values estimated from existing studies Value of waterfowl hunting StudyRegionTime FrameConsumer Surplus/Trip CooperCalifornia1989$11.39 – $32.26 Hammack & Brown Pacific Flyway 1972$36 - $ Van KootenAlberta1993$23.65

Benefits Transfer Challenges: Past studies must exist Activities, locations and populations must correspond Methods for Measuring Non-Market Values:

Conclusions: Valuing non-market goods is hard Detailed studies can be expensive and time consuming Benefits transfer (if possible) can provide a policy relevant estimate for less time and money Methods for Measuring Non-Market Values: