valuing the environment: methods

Valuing the environment: Valuing the environment: MethodsMethods

ex ante vs. ex postex ante vs. ex post

ex anteex ante valuation: desirability of proposed valuation: desirability of proposed actionaction

ex postex post analysis: judge either the success or the analysis: judge either the success or the damage done by implemented actions damage done by implemented actions

types of values / total WTPtypes of values / total WTP

use: direct use of resource use: direct use of resource fish / timber harvested / water extractedfish / timber harvested / water extracted

optionoption can use it in the futurecan use it in the future

nonusenonuse preserving something will never use preserving something will never use e.g., existence valuee.g., existence value

TWP = use + option + nonuseTWP = use + option + nonuse

classifying valuation methodsclassifying valuation methods

MethodsMethods Revealed prefRevealed pref Stated prefStated pref

DirectDirect market pricemarket price contingent valuationcontingent valuation

IndirectIndirect travel costtravel cost attribute-based modelsattribute-based models

hedonic propertyhedonic property conjoint analysisconjoint analysis

hedonic wagehedonic wage choice experimentschoice experiments

avoidance expendituresavoidance expenditures contingent rankingcontingent ranking

revealed preferencerevealed preference

based on actual observable choices based on actual observable choices actual resource values can be inferredactual resource values can be inferred how much did fisherman lose from oil spill?how much did fisherman lose from oil spill?

how much did catch decline?how much did catch decline? what is value of lost consumer surplus? (area under what is value of lost consumer surplus? (area under

demand curve): market pricedemand curve): market price

stated preferencestated preference

used when value is not directly observableused when value is not directly observable value of northern spotted owlvalue of northern spotted owl

survey respondents for WTP to preserve this survey respondents for WTP to preserve this species: contingent valuationspecies: contingent valuation

contingent valuation (direct, stated)contingent valuation (direct, stated)

major concern is survey biasmajor concern is survey bias strategic bias strategic bias

to influence an outcometo influence an outcome information biasinformation bias

little or no experiencelittle or no experience starting point biasstarting point bias

depends on definition of rangedepends on definition of range hypothetical biashypothetical bias

contrived set of choices (no consequences) contrived set of choices (no consequences)

travel cost (indirect / revealed)travel cost (indirect / revealed)

infer the value of recreational resource using infer the value of recreational resource using info on how much visitors spent getting to a info on how much visitors spent getting to a sitesite

construct demand curve for wtp for visitor dayconstruct demand curve for wtp for visitor day How far did they travelHow far did they travel Entrance feeEntrance fee Account for different stops, etc.Account for different stops, etc.

hedonic property valuehedonic property value(indirect / revealed)(indirect / revealed)

use multiple regression analysis to tease out use multiple regression analysis to tease out environmental component of valueenvironmental component of value

use housing prices and break price into use housing prices and break price into components (# bedrooms, baths, lot size, crime components (# bedrooms, baths, lot size, crime rates, school quality, air quality, etc)rates, school quality, air quality, etc)

measure marginal wtp for discrete changes in measure marginal wtp for discrete changes in each attributeeach attribute

coqui frogs as a form of noise pollutioncoqui frogs as a form of noise pollution

hedonic wagehedonic wage(indirect / revealed)(indirect / revealed)

similar idea, except isolate component of wage similar idea, except isolate component of wage that serves to compensate workers in risky that serves to compensate workers in risky occupations for taking on the riskoccupations for taking on the risk

high risk => high wagehigh risk => high wage Tobacco CEO’sTobacco CEO’s

averting / defensive expenditures averting / defensive expenditures (indirect / revealed)(indirect / revealed)

those designed to reduce damage caused by those designed to reduce damage caused by pollution by taking averting / defense actionpollution by taking averting / defense action

air purifiers / bottled waterair purifiers / bottled water air conditioners to drown out coqui calls?air conditioners to drown out coqui calls? lower bound estimatelower bound estimate

attribute based modelsattribute based models(indirect / stated)(indirect / stated)

useful when project options have multiple useful when project options have multiple levels of different attributeslevels of different attributes

survey based, but choosing different states of survey based, but choosing different states of the worldthe world

each state of the world has set of attributes and each state of the world has set of attributes and a pricea price

conjoint analysis:conjoint analysis:how to manage a forest?how to manage a forest?

conjoint analysis: conjoint analysis: sample questionnairesample questionnaire

benefit transferbenefit transfer

transfers existing benefit estimates in new transfers existing benefit estimates in new studystudy

used when gathering primary data too used when gathering primary data too expensive / too little timeexpensive / too little time

make suremake sure services being valued are comparableservices being valued are comparable relevant population is comparable relevant population is comparable if not, are you able to make justifiable if not, are you able to make justifiable

adjustments?adjustments?

issues in benefit estimationissues in benefit estimation

primary vs. secondary effectsprimary vs. secondary effects how far do you go?how far do you go?

tangible vs. intangibletangible vs. intangible sensitivity analysis for intangibles (don’t ignore)sensitivity analysis for intangibles (don’t ignore)

issues in cost estimationissues in cost estimation

easier than benefits!easier than benefits! approaches: survey vs. engineeringapproaches: survey vs. engineering

survey: ask how muchsurvey: ask how much engineering: catalog possible technologies and engineering: catalog possible technologies and

estimate cost of purchasing and implementing estimate cost of purchasing and implementing themthem

combined approach often bestcombined approach often best

expected valueexpected value

much scientific uncertainty in future costsmuch scientific uncertainty in future costs e.g., climate change, arrival of brown tree snakese.g., climate change, arrival of brown tree snakes

assess likelihood of possible outcomes (assign assess likelihood of possible outcomes (assign probabilities) probabilities)

expected present value of net benefits:expected present value of net benefits:

I

ij iji

EPVNB PVNBP

cost-effectiveness analysiscost-effectiveness analysis

if bca unavailable or not reliableif bca unavailable or not reliable set a policy target on some other basis than set a policy target on some other basis than

benefits and costsbenefits and costs max acceptable pollution level?max acceptable pollution level? critical number of species to preserve?critical number of species to preserve?

cost effectiveness analysis finds lowest cost cost effectiveness analysis finds lowest cost means of accomplishing objectivemeans of accomplishing objective

impact analysisimpact analysis

if both bca and cost effectiveness not possibleif both bca and cost effectiveness not possible attempts to quantify consequences of various attempts to quantify consequences of various

actionsactions makes no attempt to convert all of makes no attempt to convert all of

consequences into $$$consequences into $$$ not necessarily optimalnot necessarily optimal leaves much up to policymaker leaves much up to policymaker

valuing the environment: methods

Documents

ex postex ante valuation

intangiblesensitivity

priceconjoint analysis

value of recreational

benefit estimationprimary

cost estimationeasier

demand curve

different states