 Homework #2 due Thursday  Exam #1 on Thursday  Writing Assignment due Oct. 27th

 Classify environmental values  Discuss methods of valuation Stated vs. Revealed Preferences  Using Cost/Benefit Analysis

 Revealed Preferences  Market price  Simulated market  Travel cost  Hedonic property values  Hedonic wage values  Avoidance expenditures  Stated Preferences  Contingent valuation  Attribute based models  Conjoint analysis  Choice experiments  Contingent ranking

 Individuals reveal their value through their actions and choices Direct and observable methods  Market price  Simulated markets Indirect and inferred methods  Travel Cost  Hedonic values  Avoidance Expenditures

 Used primarily to estimate the value of various recreational activities such as fishing, hiking, camping and hunting.  In this approach, travel costs incurred in getting to a recreation site serve as a proxy for the price of recreation at the site.  Statistical methods are used to estimate a demand curve for a recreation site using data on travel costs, distance to the site, and other socio-demographic variables.  Does not capture option, existence, or bequest values

 Value relative to a characteristic, uses regression analysis (stat. technique)  Hard to separate environmental factors from other housing characteristics  Hedonic property values –  use market data on houses, break down the house’s characteristics, environmental characteristics and compare differences  estimate the marginal willingness to pay for some environmental attribute, such as cleaner air or a decrease in the probability of death. The value of the attribute is measured by estimating its contribution to the value of some other good; for example, how does a change in air quality contribute to the value of a house with a given set of characteristics.  Hedonic wage approach – workers in high-risk occupation demand higher wages

 The amount people must pay to avoid the adverse effects of the environmental damage.  Involves examining averting or defensive expenditures  Air purifiers for air pollution  Bottled water for water quality  A problem with this measure is that it only considers adverse effects to humans who directly use the resource. As such, other sources of value and costs are neglected.

 How much would it cost to replace or restore the damaged/destroyed resource?  A major problem here concerns equivalence. Is the replacement or restoration equivalent to that which was initially harmed. If not, this measure of value is not accurate.

 Individuals state their value.  Used when value is not directly observable (i.e. non-use values)  Typically done in survey form.

 Survey to elicit responses of valuation.  How much are you willing to pay?  Would you pay $X to preserve or prevent change? Biased  Strategic bias – respondents provide biased answers to influence results  Information bias – respondents have little or no experience  Starting-point bias – predefined range  Hypothetical Bias – respondents treat survey casual and give poor answers  Discrepancy between WTP and WTA  WTP - for quality improvements  WTA – for a loss Economists working to improve estimation methods  CV analysis use in court cases all the time  Meta –analysis – “analysis of analyses”

 Cost/Benefit  Issues in Benefit Estimation  Tendency to overstate benefits and understate costs in policy analysis.  Who reaps benefits and who reaps costs? Efficiency is not the only criteria in the policy arena. Equity may also be a concern.  Primary effects vs. secondary effects  Tangible benefits vs. Intangible benefits  Treatment of Risk and Uncertainty  Discount rate  Public sector rate ≠ private sector rate => inefficiency

 Cost Effectiveness  Set a minimum or maximum standard  Evaluate policies on that criterion  All efficient policies are cost-effective, but not all cost-effective policies are efficient.  Impact Analysis  List of potential impacts both environmental and economic.

 Homework #2 due Thursday  Exam #1 on Thursday  Writing Assignment due Oct. 27th