Ch 7-Assessing Benefits For Env. Decision Making

Front 1

Environmental benefits

Back 1

____ ______ measure damage reduction.

Front 2

Policy
incremental benefits

Back 2

_____ brings about changes in these damage reductions, and these changes are referred to as _________ benefits.

Front 3

Incremental benefits

Back 3

The reduction in health, ecological, and property damages associated with an environmental policy initiative

Front 4

-Primary environmental benefits
-Secondary environmental benefits

Back 4

Two types of incremental benefits

Front 5

Primary Environmental Benefits

Back 5

Damage-reducing effects that are a direct consequence of implementing environmental policy

Front 6

Secondary environmental benefits

Back 6

Indirect gains to society that may arise from a stimulative effect of primary benefits or from a demand-induced effect to implement policy

Front 7

Nonrevelation

Back 7

Assigning Value to Incremental Benefits:
Since environmental quality is a public, nonmarketed good, its D cannot be identified because of ________ of
preferences

Front 8

-Area under MSB is TSB
-Changes in TSB would be incremental benefits

Back 8

Assigning Value to Incremental Benefits:
But if we could infer society’s D (or MSB) for environmental quality, we could measure incremental benefits as follows:

Front 9

user

Existence

Back 9

Valuing Environmental Quality
Two Sources of Value:
Total value = ____ value + ________ value

Front 10

User value

Back 10

the benefit derived from physical
use or access to an environmental good

Front 11

-Direct user value
-Indirect User Value

Back 11

Two types of user values are

Front 12

Direct user value

Back 12

is the benefit derived from directly consuming services provided by an environmental good

Front 13

Indirect user value

Back 13

is the benefit derived from indirect consumption of an environmental good

Front 14

Existence value

Back 14

the benefit received from the
continuance of an environmental good

Front 15

vicarious consumption and stewardship

Back 15

Existence value is Motivated by (2 things)

Front 16

Vicarious Consumption

Back 16

Utility associated with knowing that others derive benefits from an environmental good

Front 17

Stewardship

Back 17

Sense of obligation to preserve the environment for future generations

Front 18

Physical linkage approach

Behavioral linkage approach

Back 18

Two major Approaches to measuring environmental benefits are

Front 19

Physical linkage approach (to measuring environmental benefits)

Back 19

Estimates benefits based upon a technical relationship between environmental resource
and user of resource

Front 20

Behavioral linkage approach (to measuring environmental benefits)

Back 20

Estimates benefits using observations of
behavior in actual markets or survey responses about hypothetical markets

Front 21

Damage

Back 21

Physical Linkage uses the ____ Function method

Front 22

Direct
Indirect

Back 22

Behavioral Linkage uses _____ and ______ methods.

Front 23

Damage Function method (Does 2 things)

Back 23

-Specifies a relationship between a contaminant (C) and some observed total damage (TD)
-Estimates benefits as TD declines from the policy-induced change in C
Note: Dose-response function is one type of damage function

Front 24

Contingent Valuation Method (Does 2 things)

Back 24

-Estimates benefits from survey responses about WTP for environmental quality
contingent upon hypothetical market
-Tries to finesse nonrevelation problem

Front 25

Steps in contingent valuation method (3)

Back 25

-Construct model of hypothetical market
-Design survey
-Assess honesty of respondents

Front 26

Willingness to pay

Back 26

WTP = _____ to ______

Front 27

Contingent Valuation Method(CVM)

Back 27

Characteristics:
-Broad applicability
-Can capture existence as well as user value
-Inherent biases due to survey approach

Front 28

Averting Expenditure Method(AEM)

Back 28

-Estimates benefits as the reduction in spending on goods that are substitutes
for a cleaner environment
-As pollution damages the environment, people incur
“averting” expenditures to improve their personal
environment
-This spending is reduced as policy improves the
overall environment
-This spending reduction is an estimate of the WTP for associated incremental benefits

Front 29

Travel Cost Method(TCM)

Back 29

-Estimates benefits as an increase in consumer surplus (CS) in the market for a complement to environmental quality (i.e.,recreational use), as policy improves that quality
-As policy improves the environment, the D for recreational use of the environment increases, causing an increase in CS
-This CS increase is the benefit estimate

Front 30

Hedonic Price Method

Back 30

Uses estimated hedonic, or implicit,price of an environmental attribute to
value a policy-driven improvement
-e.g., PHOUSE = f(X1, X2, ….Xn, E), where:
-each Xi is an attribute of the house, and E is the environmental quality in the area
-Hedonics uses regression analysis,which provides estimates of the prices of the individual attributes, including E

Front 31

Hedonic Price Method

Back 31

-This price could be used to estimate the D for environmental quality, which in turn could be used to measure the
incremental benefit of improving that quality
-Recall that incremental benefit can be measured as an area under the D curve

Front 32

Hedonic Price Method

Back 32

-Logical, intuitive
-Difficult to employ
-Requires complex empirical modeling
-Requires extensive data