Nonmarket Values Property, ideas and experiences can have “value” even if not exchanged in a market.

Producer Surplus Consumer Surplus Supply Demand Price ($/Q) QuantityQ* P* P & Q where S = D maximizes consumer and producer surplus Market Based Value

Total Economic Value Use Value Direct Use Indirect Use Option Nonuse Value ExistenceBequest Consumptive Use Nonconsumptive Use

Why Are Nonmarket Values Needed Allocation of resources – Budgeted – Regulatory Reduced resource use – Avoidance of costs

Ways to Measure Willingness to make tradeoffs, sacrifices, or pay directly – Measure with a simulated market (stated preference) – Observe actual behavior (revealed preference)

Hedonic Modeling Statistically isolate the effect of differences in the characteristics and contexts of a category of property – Price = f (positive attributes, negative attributes) – Subject property Urban houses Building lots Recreation areas

Travel Cost Model Used to value recreation areas – Based on out-of-pocket and opportunity cost to travel to a destination Zonal Individual – Costs that can be added Entrance fee Equipment License – hunting, fishing

Stated Preference A direct measurement Willingness to pay – Amount individual would be willing to pay to engage in a defined activity Willingness to accept – Amount individual would accept in payment for not doing something

Contingent Valuation Model Setup a hypothetical market – Describe characteristics of the thing or opportunity for sale – Describe attributes of the market – Individual states what they would pay for the thing or opportunity – Survey techniques used – Many potential biases