Section 7: Valuation Methods

Question 1

Name at least 3 reasons why we “value” the environment (in terms of using valuation methods)

Answer 1

1. To help with Tradeoff Analysis
2. Assessment of environmental damage
3. “Green” accounting (for Green GDP)
4. Setting environmental goals
5. Policy analysis

Question 2

Is monetization the only type of valuation?

Answer 2

No

Question 3

Name the 3 types of value in the Total Economic Value (TEV) framework

Answer 3

• Direct use
• Indirect use
• Non-use

Question 4

Explain what 2 categories fall under direct use values and provide examples

Answer 4

1. Extractive: Harvesting trees

2. Non-extractive: Hiking in a forest

Question 5

What service falls under an indirect use value? Provide examples of this service

Answer 5

Ecosystem services

These can include soil retention, climate stabilization, water management, life support

Question 6

List the 3 categories that fall under non-use values

Answer 6

1. Existence value
2. Option (to use is in future)
3. Bequest (leaving resource for future generation)

Question 7

In the Ecosystem Services framework, what are the 4 types of services? Provide an example for each

Answer 7

1. Supporting services: nutrient cycling, soil formation
2. Provisioning services: food, fiber (wood), natural medicine, freshwater
3. Regulating services: air quality regulation, climate regulation, pollination, water regulation
4. Cultural services: aesthetic values, spiritual/religious values, recreation

Question 8

Valuation methods are either ___ preference or ____ preference

Answer 8

stated or revealed

Question 9

Explain the strengths and weaknesses of stated preference

Answer 9

Strengths: its flexible and novel contexts
Weaknesses: unrealistic scenarios and biases from the consumer

Question 10

Explain the strengths and weaknesses of revealed preference

Answer 10

Strengths: Real-world scenarios, dependable results
Weaknesses: restricted and can be problematic

Question 11

Explain what the Market Price method is and what it can be used for

Answer 11

A revealed preference method that values environmental services that are traded in the market. This can be used to estimate changes in social welfare from an environmental impact

Question 12

Explain what the Production Function method is and what it can be used for

Answer 12

A revealed preference method that statistically analyzes the contribution of various inputs to outputs in a production process. Useful when environmental services are input to economic activity (GDP)

Question 13

Explain what the Avoided Cost method is and what it can be used for

Answer 13

A revealed preference method based on avoided cost of supplying a substitute or replacement. Only applies when there is a human-made substitute on the market

E.g. buy insulation to reduce noise pollution

Question 14

Explain what the Hedonic Pricing method is and what it can be used for

Answer 14

A revealed preference method in which a market good is bundled with an environmental good. Used in housing transactions when consumers when about an ecosystem service, where data is available, and in certain ecosystem services

Question 15

Explain what the Travel Cost method is

Answer 15

People who live further from service experience greater travel costs. Travel cost data is used to make a demand curve.

Question 16

Explain what Contingent Valuation is

Answer 16

A stated preference method that asks people what they are willing to pay (or accept) for changes in quality of an environmental amenity

Question 17

Explain willingness to accept as an alternative to willingness to pay

Answer 17

Willingness to accept is the maximum amount of money a consumer would pay to preserve an ecosystem service. Willingness to pay tends to be lower