chapter 12 vocab

Question 1

a tax levied on a product to reduce or eliminate the negative externality associated with its production

Answer 1

Pigovian tax

Question 2

bringing external costs into the market (for example, by instituting a Pigovian tax at a level equal to the externality damage), thus making market participants pay the true social cost of their actions

Answer 2

internalizing negative externalities

Question 3

a per-unit payment to producers to lower production costs and encourage greater production

Answer 3

subsidy

Question 4

taxes instituted as close as possible in a production process to the extraction of raw materials

Answer 4

upstream taxes

Question 5

offsetting any tax increases with decreases in other taxes such that overall tax collections remain constant

Answer 5

revenue-neutral (taxes)

Question 6

the economic value of something, such as an environmental benefit, is equal to the maximum amount people are willing to pay for it

Answer 6

willingness-to-pay (WTP) principle

Question 7

the value of something in an ecological or ethical sense, apart from any economic value based on willingness to pay

Answer 7

intrinsic value

Question 8

tangible benefits that humans obtain from natural processes, such as nutrient recycling, flood control, and pollination

Answer 8

ecosystem services

Question 9

nontangible welfare benefits that people derive from ecosystems without physical interaction (i.e., psychological benefits)

Answer 9

nonuse benefits

Question 10

the sum of all the benefits for which people are willing to pay, with respect to an ecosystem or natural place

Answer 10

total economic value

Question 11

economic valuation methods that obtain estimates for goods and services not directly traded in markets

Answer 11

nonmarket valuation techniques

Question 12

a nonmarket valuation technique that estimates the direct and indirect costs associated with illnesses with environmental causes

Answer 12

cost of illness method

Question 13

an estimate that represents the minimum potential value of something. The actual value is thus greater than or equal to the lower-bound estimate

Answer 13

lower-bound estimate

Question 14

nonmarket valuation techniques that estimate the value of ecosystem services based on the cost of actions that provide substitute services

Answer 14

replacement cost methods

Question 15

valuation techniques that infer the value of nonmarket goods and services based on people’s decisions in related markets

Answer 15

revealed preference methods

Question 16

a revealed preference method used to obtain estimates of the recreation benefits of natural sites based on variations in the travel costs paid by visitors from different regions

Answer 16

travel cost models

Question 17

a nonmarket valuation technique that obtains benefit estimates based on the cost of actions that people take to avoid environmental harm

Answer 17

defensive expenditures approach

Question 18

nonmarket valuation techniques that directly ask survey respondents about their preferences in a hypothetical scenario

Answer 18

states preference methods

Question 19

a stated preference method where survey respondents are asked about their willingness to pay for a hypothetical outcome

Answer 19

contingent valuation

Question 20

a stated preference method in which respondents are asked to rank various hypothetical scenarios

Answer 20

contingent ranking

Question 21

a technique to analyze a policy or project proposal in which all costs and benefits are converted to monetary estimates, if possible, to determine the net social value

Answer 21

cost-benefit analysis

Question 22

an approach in which costs and benefits that occur in the future are assigned less weight (i.e., discounted) relative to current costs and benefits

Answer 22

discounting

Question 23

the current value of a future cost or benefit, obtained by discounting

Answer 23

present value

Question 24

the annual percentage rate at which future costs and benefits are discounted relative to current costs and benefits

Answer 24

discount rate

Question 25

society’s willingness to pay to avoid one death, based on the valuation of relatively small changes in mortality risks

Answer 25

value of a statistical life (VSL)

Question 26

the notion that policies should err on the side of caution when there is a low-probability risk of a catastrophic outcome

Answer 26

precautionary principle

Question 27

policies that control pollution by setting maximum allowable pollution levels or controlling the uses of a product or process

Answer 27

pollution standards

Question 28

policies that create an incentive for firms to reduce pollution without mandating that firms take any specific actions

Answer 28

market-based approaches (to pollution regulation)

Question 29

a system of pollution regulation in which a government allocates permits that are required in order to produce pollution. After they are allocated, these permits may be traded among firms or other interested parties

Answer 29

tradable pollution permits