Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Econ 225 > Chapter 5 > Flashcards

Chapter 5 Flashcards

1
Q

How can we divide the 2 types of benefits of pollution control?

A

1.Market benefits

  1. Non market benefits
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

how do we measure non market benefits?

A

By inferring how much people would be willing to pay (or accept) for these benefits if a market for them did exist.

need to estimate the risk associated.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is use value?

A

The value in something’s usage.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is an option value?

A

Willing to pay for something to preserve the option that the resource might be valuable in the future.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is the total value of an environmental resource?

A

The sum of its existence value, its option value and its use value.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is the consumer surplus?

A

the difference between what one is willing to pay and what one actually has to pay for a service or product.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

How do we calculate the consumer surplus from a graph?

A

For a unit: the area of the slot on the graph

For the total CS: adding the different areas

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is the relationship between the consumer surplus and the WTP?

A

the price that people are willing to pay is a close approximation to the increase in consumer surplus that they enjoy.

So, one can measure the benefits of environmental improvement simply by determining people’s WTP for such improvement and adding the results.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What are the ways to measure consumer surplus?

A
  1. WTP
  2. WTA
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is WTA?

A

The compensation in exchange for a degradation in environmental quality.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Why is WTA higher than the consumer surplus? Why is WTP lower?

A

WTA is higher because Individuals are actually made a bit richer when they are compensate for damage.

WTP is lower because as people will be made poorer if they have to pay for environmental improvement.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What explains the divergence between WTP and WTA benefit measure?

A
  1. People are more wiling to sacrifice to maintain the existing quality of the environment that they are to improve environmental quality beyond what is already experienced.
    - endowment effect
  2. Degree of substitutability between environmental quality and other consumption goods.
    - there are no good substitutes
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is the endowment effect?

A

people may adopt the status quo as their reference point and demand higher compensation to allow environmental degradation than they are willing to pay for making improvements.

this would reshape the marginal benefit curve for pollution reduction - it would dramatically rise within the current levels of pollution.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

How do we know whether to use WTP or WTA?

A

It depends on the property rights.

  1. WTA - common property resources that belong to “the people”
    - giving someone compensation = will generate underestimates of the underlying resource value.
  2. WTP - when an individuals gain benefits from environmental protection.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is a concern for WTP and WTA?

A

Rich people because of their high income will be willing to pay more for environmental improvement and will require more to accept for environmental degradation.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is a dose-response model?

A

The assumptions made in moving from high-dose animal studies to low-dose human exposure.

17
Q

Why are risk assessments imprecise?

A

Researchers often adopt a conservative modelling stance, meaning that every assumption made in the modelling process is likely to overstate the true risk.

Health risks

18
Q

How do we calculate the overall risk from a particular pollutant or environmental problem?

A

It is equal to the product of the actual risk to exposed individuals and the number of people exposed.

19
Q

How do we characterize the acceptability of risk?

A

The acceptability of risk is influenced by the degree of control an individual feels he or she has over a situation.

For example: cigarette smoking has more risks than air pollution, but we invest way more in cleaning our air. People have control over smoking cigarettes, but air pollution is imposed on individuals by others.

20
Q

What are the 3 reasons why public perception risk differ from the scientific assessed risk?

A
  1. The acceptability of risk
  2. Lack of knowledge or distrust of experts
  3. People are risk-averse
21
Q

Why do people lack knowledge or distrust experts when it comes to risk assessment?

A

There are uncertainties about many estimates and people lack the knowledge to understand the proper public priorities.

22
Q

What is being risk-averse?

A

People dislike highly risky situations. Risk aversion underlies the option value placed on natural resources.

23
Q

What are contingent valuations?

A

When economists use survey approaches for measuring the benefits of environmental protection using WTP and WTA.

24
Q

What are 4 sources of error of contingent valuation?

A
  1. Hypothetical bias.
  2. Free riding.
  3. Strategic bias.
  4. Embedding bias.
25
Q

Explain the hypothetical bias for contingent valuation.

A

Because questions are asked as possibilities and are hypothetical, the answers might also be hypothetical - they will be poorly thought and meaningless.

26
Q

Explain the free riding problem for contingent valuation.

A

Free riding always exists when people are asked to to pay for a public good.

they might vote to not contribute to environmental protection thinking others will say yes. People will have an incentive to understate their true WTP.

27
Q

Explain the strategic bias for contingent valuation.

A

Arises when people think they really do not have to pay their stated WTPs (or WTA) for the good in question.

People will inflate their WTP if they think that it will lead to a higher likelihood of mandated protection.

28
Q

Explain the embedding bias for contingent valuation.

A

Answers are strongly affected by the context provided about the issue.

29
Q

Why is the contingent valuation method still being used despite its criticisms?

A

It provides the only available means for estimating non-market benefits primarily based on existence value.

30
Q

What sort of approach is CV considered? Why?

A

A stated-preference approach eliciting non market values because people are asked to state their preferences in surveys.

31
Q

What are 2 approaches that rely on revealed preferences for market goods?

A
  1. Travel cost.
  2. Hedonic regression.

These pick up option values, but not existence values.

32
Q

What is the travel-cost method?

A

This approach is used to measure the benefits associated with recreational resources, such as parks, rivers, or beaches.

We measure the amount of money people expend to use the resource. By relating the differences in travel cost to the differences in consumption, a demand curve for the resource can be derived and the consumer surplus estimated.

33
Q

What are the external factors to the travel cost analysis?

A
  1. People have different incomes, tastes, and opportunity costs for travel.
  2. Presence of alternative opportunities.
34
Q

What is hedonic regression?

A

Hedonic regression uses change in prices of related (complementary) goods to infer WTP for a healthier environment.

A hedonic regression estimates the pleasure or utility associated with an improved environment.

35
Q

What is the difficulty with hedonic regression?

A

Controlling other factors that may affect the change in price of the related good.

Most controversial application: valuing human life.

36
Q

What do efficiency proponents say the best way to place value on human life?

A

It is the one people themselves choose in the marketplace.

Hedonic regression can be used to estimate this value.

37
Q

Explain how we can use hedonic regression to value human life?

A

Isolating the wage premium people are paid to accept especially risky jobs - we can estimate the WTA higher salaries in exchange for an increase in the risk of death and the value of life.

This is not the value of a specific life. The regression attempts to measure the amount of money the average individual in society requires to accept a higher risk of death from environmental degradation.

38
Q

What are 3 issues with valuing human life with the hedonic regression?

A
  1. Accurate information.
    - people can underestimate dangers and think it won’t happen to them.
  2. Sample selection bias.
    - people who do risky jobs might not represent the average person in terms of their risk. These people might be more risk-seeking.
  3. Involuntary nature of risk.
    - ?
39
Q

Why are the values of statistical lives smaller for poor countries than rich countries?

A

Because poor people have less income, they are more willing to accept riskier jobs at much lower wages.

Econ 225 (12 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions