Valuing the environment: Methods

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Valuing the environment Methods
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ex ante vs. ex post

• ex ante valuation desirability of proposed
  action
• ex post analysis judge either the success or the
  damage done by implemented actions

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types of values / total WTP

• use direct use of resource
• fish / timber harvested / water extracted
• option
• can use it in the future
• nonuse
• preserving something will never use
• e.g., existence value
• TWP use option nonuse

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classifying valuation methods
Methods Revealed pref Stated pref
Direct market price contingent valuation

Indirect travel cost attribute-based models
hedonic property conjoint analysis
hedonic wage choice experiments
avoidance expenditures contingent ranking
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revealed preference

• based on actual observable choices
• actual resource values can be inferred
• how much did fisherman lose from oil spill?
• how much did catch decline?
• what is value of lost consumer surplus? (area
  under demand curve) market price

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classifying valuation methods
Methods Revealed pref Stated pref
Direct market price contingent valuation

Indirect travel cost attribute-based models
hedonic property conjoint analysis
hedonic wage choice experiments
avoidance expenditures contingent ranking
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stated preference

• used when value is not directly observable
• value of northern spotted owl
• survey respondents for WTP to preserve this
  species contingent valuation

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contingent valuation (direct, stated)

• major concern is survey bias
• strategic bias
• to influence an outcome
• information bias
• little or no experience
• starting point bias
• depends on definition of range
• hypothetical bias
• contrived set of choices (no consequences)

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classifying valuation methods
Methods Revealed pref Stated pref
Direct market price contingent valuation

Indirect travel cost attribute-based models
hedonic property conjoint analysis
hedonic wage choice experiments
avoidance expenditures contingent ranking
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travel cost (indirect / revealed)

• infer the value of recreational resource using
  info on how much visitors spent getting to a site
• construct demand curve for wtp for visitor day
• How far did they travel
• Entrance fee
• Account for different stops, etc.

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classifying valuation methods
Methods Revealed pref Stated pref
Direct market price contingent valuation

Indirect travel cost attribute-based models
hedonic property conjoint analysis
hedonic wage choice experiments
avoidance expenditures contingent ranking
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hedonic property value(indirect / revealed)

• use multiple regression analysis to tease out
  environmental component of value
• use housing prices and break price into
  components ( bedrooms, baths, lot size, crime
  rates, school quality, air quality, etc)
• measure marginal wtp for discrete changes in each
  attribute
• coqui frogs as a form of noise pollution

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classifying valuation methods
Methods Revealed pref Stated pref
Direct market price contingent valuation

Indirect travel cost attribute-based models
hedonic property conjoint analysis
hedonic wage choice experiments
avoidance expenditures contingent ranking
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hedonic wage(indirect / revealed)

• similar idea, except isolate component of wage
  that serves to compensate workers in risky
  occupations for taking on the risk
• high risk gt high wage
• Tobacco CEOs

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classifying valuation methods
Methods Revealed pref Stated pref
Direct market price contingent valuation

Indirect travel cost attribute-based models
hedonic property conjoint analysis
hedonic wage choice experiments
avoidance expenditures contingent ranking
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averting / defensive expenditures (indirect /
revealed)

• those designed to reduce damage caused by
  pollution by taking averting / defense action
• air purifiers / bottled water
• air conditioners to drown out coqui calls?
• lower bound estimate

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classifying valuation methods
Methods Revealed pref Stated pref
Direct market price contingent valuation

Indirect travel cost attribute-based models
hedonic property conjoint analysis
hedonic wage choice experiments
avoidance expenditures contingent ranking
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attribute based models(indirect / stated)

• useful when project options have multiple levels
  of different attributes
• survey based, but choosing different states of
  the world
• each state of the world has set of attributes and
  a price

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conjoint analysishow to manage a forest?
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conjoint analysis sample questionnaire
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benefit transfer

• transfers existing benefit estimates in new study
• used when gathering primary data too expensive /
  too little time
• make sure
• services being valued are comparable
• relevant population is comparable
• if not, are you able to make justifiable
  adjustments?

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issues in benefit estimation

• primary vs. secondary effects
• how far do you go?
• tangible vs. intangible
• sensitivity analysis for intangibles (dont
  ignore)

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issues in cost estimation

• easier than benefits!
• approaches survey vs. engineering
• survey ask how much
• engineering catalog possible technologies and
  estimate cost of purchasing and implementing them
• combined approach often best

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expected value

• much scientific uncertainty in future costs
• e.g., climate change, arrival of brown tree
  snakes
• assess likelihood of possible outcomes (assign
  probabilities)
• expected present value of net benefits

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cost-effectiveness analysis

• if bca unavailable or not reliable
• set a policy target on some other basis than
  benefits and costs
• max acceptable pollution level?
• critical number of species to preserve?
• cost effectiveness analysis finds lowest cost
  means of accomplishing objective

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impact analysis

• if both bca and cost effectiveness not possible
• attempts to quantify consequences of various
  actions
• makes no attempt to convert all of consequences
  into
• not necessarily optimal
• leaves much up to policymaker