1.  Homework #8 due Next Thursday  Group Outline due Nov. 11 (next Thurs.)

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

3.  Use value – the value that people place on the use of a good or service Direct use value- the value one obtains by directly using a natural resource, such as visiting a national park Indirect use value- ecosystem benefits not valued in markets, such as flood prevention or pollution absorption.

4.  Non-use value- values people obtain without actually using a resource Existence value- the value people place on the continued existence of a resource, such as the benefit of knowing acres of the rainforest have been preserved Option value- the value people place on maintaining future resource use options Bequest value-value people place on the knowledge that a resource will be available for future generations

5.  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

6.  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

7.  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

8.  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

9.  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.

10.  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.

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

12.  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”

13.  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 more projects than is optimal

14.  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.

15.  Homework #8 due Next Thursday  Group Outline due Nov. 11 (next Thurs.)