Chapter 6 Flashcards
What is willingness to accept?
The minimum amount of money people would accept as compensation for an action that reduces their well-being.
Use Value
The value that people place on the tangible or physical benefits of a good or service.
Non-use Value
Values that people obtain without actually using a resource (i.e., psychological benefits); nonuse values include existence, option, and bequest values.
Direct-Use Value
The value one obtains by directly using a natural resource, such as harvesting a tree or visiting a national park.
Indirect-Use Value
The ecosystem benefits that are not valued in markets, such as flood prevention and pollution absorption.
What are the 2 types of use value?
Direct use and Indirect-use Value
What are the 3 types of nonuse value?
Option Value
Bequest Value
Existence Value
What is option value?
The value that people place on the maintenance of future options for resource use.
What is bequest value?
The value that people place on the knowledge that a resource will be available for future generations.
What is existence value?
the value people place on a resource that they do not intend to ever use, such as the benefit that one obtains from knowing an area of rainforest is preserved even though he or she will never visit it.
What are the 4 market valuation techniques?
Cost of Illness Method
Replacement Cost Method
Revealed Preference Method
Stated Preference Method
What is the cost of illness method?
An approach for valuing the negative impacts of pollution by estimating the cost of treating illnesses caused by the pollutant.
What is an direct cost of cost illness method?
Medical costs
What is an indirect cost of cost illness method?
Decrease in human capital such as missing school or work
What is the replacement cost method?
An approach to measuring environmental damages that estimates the costs necessary to restore or replace the resource.
What is an example of replacement cost method?
such as applying fertilizer to restore soil fertility
What is the revealed preference method?
Methods of economic valuation based on market behaviors
What are the 3 types of revealed preference methods?
Travel Costs
Hedonic Pricing
Defensive Expenditures Approach
What is the travel costs method?
The use of statistical analysis to determine people’s willingness to pay to visit a natural resource such as a national park or river; a demand curve for the resource is obtained by analyzing the relationship between visitation choices and travel costs.
What is hedonic pricing?
The use of statistical analysis to explain the price of a good or service as a function of several components, such as explaining the price of a home as a function of the number of rooms, the caliber of local schools, and the surrounding air quality.
What is the defensive expenditures approach?
A pollution valuation methodology based on the expenditures households take to avoid or mitigate their exposure to a pollutant.
How can a travel cost model be used to estimate consumer surplus?
This effectively provides us with variation in the “price” that different visitors must pay in order to visit a particular site. We can use this variation to estimate a full demand curve and thus obtain an estimate of consumer surplus.
How can hedonic pricing models be used to estimate economic values?
Housing prices may also be affected by environmental quality or natural resource variables, including air quality, visibility, noise pollution, and proximity to a natural area. Using statistical methods, a researcher can attempt to isolate the relationship between housing prices and these environmental variables. The results indicate how much buyers are willing to pay for improved environmental quality, holding the other characteristics of the house constant.
How can the defensive expenditures approach be used to estimate economic values?
If we observe individuals spending money or time for environmental quality improvements, then we can use this information to infer their WTP for these improvements.
Why can the revealed preference method only be used in certain situations?
Because it does not reveal the total economic value of natural resources
What is the stated preference method?
Economic valuation methods based on survey responses to hypothetical scenarios, including contingent valuation and contingent ranking.
What is contingent valuation?
An economic tool that uses surveys to question people regarding their willingness to pay for a good, such as the preservation of hiking opportunities or air quality.
What is the main advantage of contingent valuation
The main advantage is that it can be applied to any situation to determine the WTA or WTP for a hypothetical scenario. Using a survey, we can ask respondents about the total economic value that they place on any resource, including use and nonuse benefits.
Limitations to Contingent Valuation
Biases
How it is administered
Discrepancy between WTP and WTA
What did the NOAA panel conclude about contingent valuation?
NOAA concluded that CV studies can produce estimates reliable enough to be the starting point of a judicial process of damage assessment, including lost passive-use values
What were the NOAA recommendations for the contingent valuation?
In-person surveys
WTP questions over WTA questions
The WTP question should be phrased using a “Yes/No” format with a specific price.
Follow-up questions should be included to determine whether respondents understood the hypothetical scenario and why they answered the valuation question as they did.
The respondents should be reminded of their income constraints and that funds used for the scenario under study cannot be used for other purposes.
What is contingent ranking?
A survey method in which respondents are asked to rank a list of alternatives.
What are the advantages to contingent ranking?
Respondents are more comfortable to answer
Biases are reduced
Limitations to Contingent Ranking
Each scenario consists of several different attributes
Number of scenarios become too large
