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32 Cards in this Set

  • Front
  • Back
Environmental benefits
____ ______ measure damage reduction.
incremental benefits
_____ brings about changes in these damage reductions, and these changes are referred to as _________ benefits.
Incremental benefits
The reduction in health, ecological, and property damages associated with an environmental policy initiative
-Primary environmental benefits
-Secondary environmental benefits
Two types of incremental benefits
Primary Environmental Benefits
Damage-reducing effects that are a direct consequence of implementing environmental policy
Secondary environmental benefits
Indirect gains to society that may arise from a stimulative effect of primary benefits or from a demand-induced effect to implement policy
Assigning Value to Incremental Benefits:
Since environmental quality is a public, nonmarketed good, its D cannot be identified because of ________ of
-Area under MSB is TSB
-Changes in TSB would be incremental benefits
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:

Valuing Environmental Quality
Two Sources of Value:
Total value = ____ value + ________ value
User value
the benefit derived from physical
use or access to an environmental good
-Direct user value
-Indirect User Value
Two types of user values are
Direct user value
is the benefit derived from directly consuming services provided by an environmental good
Indirect user value
is the benefit derived from indirect consumption of an environmental good
Existence value
the benefit received from the
continuance of an environmental good
vicarious consumption and stewardship
Existence value is Motivated by (2 things)
Vicarious Consumption
Utility associated with knowing that others derive benefits from an environmental good
Sense of obligation to preserve the environment for future generations
Physical linkage approach

Behavioral linkage approach
Two major Approaches to measuring environmental benefits are
Physical linkage approach (to measuring environmental benefits)
Estimates benefits based upon a technical relationship between environmental resource
and user of resource
Behavioral linkage approach (to measuring environmental benefits)
Estimates benefits using observations of
behavior in actual markets or survey responses about hypothetical markets
Physical Linkage uses the ____ Function method
Behavioral Linkage uses _____ and ______ methods.
Damage Function method (Does 2 things)
-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
Contingent Valuation Method (Does 2 things)
-Estimates benefits from survey responses about WTP for environmental quality
contingent upon hypothetical market
-Tries to finesse nonrevelation problem
Steps in contingent valuation method (3)
-Construct model of hypothetical market
-Design survey
-Assess honesty of respondents
Willingness to pay
WTP = _____ to ______
Contingent Valuation Method(CVM)
-Broad applicability
-Can capture existence as well as user value
-Inherent biases due to survey approach
Averting Expenditure Method(AEM)
-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
-This spending is reduced as policy improves the
overall environment
-This spending reduction is an estimate of the WTP for associated incremental benefits
Travel Cost Method(TCM)
-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
Hedonic Price Method
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
Hedonic Price Method
-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
Hedonic Price Method
-Logical, intuitive
-Difficult to employ
-Requires complex empirical modeling
-Requires extensive data