Econ 225 Ch 7

Front 1

How do you determine total benefits of reducing polution?

Back 1

Market demand curve. Equivalent to a reduction in total damages

Front 2

How do you value the loss of a market good to pollution? A non-market good?

Back 2

Valued as its price since market price represents MWTP for the good

If non-market, estimate the MWTP

Front 3

What are the 3 types of valuation?

Back 3

Use value --> WTP for direct use

Option value --> WTP for future ability to use
Passive-use value (non-consumptive) --> WTP to preserve something that they will never use

Front 4

What are the two types of classifying valuation methods?

Back 4

Revealed preference method --> based on actual observable choice, resource values can be directly inferred

Stated preference method --> respondents' WTP when value is not directly observable

Front 5

Why is determining a populations' WTP to reduce pollution complex?

Back 5

There's no market where people buy and sell units of environmental quality

Front 6

What are the two main ways to measure WTP?

Back 6

DIRECT: how much people would be willing to pay to avoid the harm by pollution (ex. amount paid to remediate a polluted site)

IN-DIRECT: based on an individual's behavior/choices when no markets exist to reflect environmental values

Front 7

What are four DIRECT methods to measure WTP for pollution?

Back 7

1. Changes in productivity (ex. health effects, impact on agriculture)
2. Health-care costs (health effect)

3. Loss of human capital (health effects)

4. Replacement/restoration of damaged property/business (pollution damage to structures, ecosystem damage)

Front 8

How do you find the maximum WTP for change in pollution?

Back 8

Individual's WRP is equal to their total benefit gained from reduced environmental change. Look at producer and consumer surplus

Front 9

What are the four INDIRECT ways of measuring WTP for pollution?

Back 9

1. Preventing/mitigating expenditures (noise, visual, air, industry, ecosystem damage)

2. Hedonic estimation - property values, wage differentials (air pollution, toxic waste sites, noise pollution)

3. Surrogate markets, travel costs, 'green goods' (recreation benefits, environmental friendly goods as substitutes for pollution intensive goods)

4. Contingent valuation & choice experiments (environmental quality - current & future)

Front 10

How would you measure WTP from preventative/mitigation expenditures?

Back 10

How much $ are people WTP to prevent/avoid poor envi conditions

Ex. How much $ on air purification systems for WTP for better air quality

This serves as the LOWER-BOUND estimate since poor handles may not be able to cope with the expenditures

Front 11

How would you measure WTP from hedonic estimation?

Back 11

Study patterns of price differences to determine what people value

Ex. Different in prices of identical houses with one in low air quality and one in high air quality

HEDONIC PROPERTY VALUE --> characteristics
HEDONIC WAGE --> risks with work

Front 12

How would you measure WTP from surrogate markets?

Back 12

Revealed preferences methods

TRAVEL COST MODELS value recreational resources by how much visitors spend getting to a site and using it as a demand curve (national parks, mountain climbing, recreational fishing and beaches)

Amount of $ to spend in a natural environment can be translated to WTP for improving environmental quality

Front 13

How would you measure WTP from contingent valuation (CV)?

Back 13

Stated preferences methods

How much are people WTP for certain envi aspects (questions/bidding game)

Hypothetical market

Issues: strategic bias, information bias, starting-point bias, hypothetical bias, discrepancy between WTP and WTAccept

Front 14

WTA vs WTP

Back 14

WTP constrained by income/preferences. WTA not constrained

WTA higher than WTP --> value loss over gaining

WTP used when envi is improved
WTA when envi is degraded

Front 15

Direct/Indirect Methods and Revealed/Stated Preferences

Back 15

Front 16

How would an economist select which method of imputing WTP to use in a given situation?

Front 17

What would be the best method to determine WTP for protection of a natural wildlife park?

Front 18

What method could we use to determine the benefits of air pollution reduction in a city?