Topic 7: Non-market Values Flashcards
Use value
-> direct use:
Consumptive: harvest wild fruits
Non-consumptive: recreation
-> indirect use:
Pest control, pollination, water cycling
Non-use value
- > altruism/bequest: happy for other people or future generations to have access to high quality environment
- > existence value: happy to know that a species or ecosystem exists
Need market values to..
Prioritise amongst competing environmental projects
Properly consider trade-offs between environmental outcomes and other outcomes
Make a case for public investment in environmental projects
Determine legal liability for breaches of environmental law
How to estimate NMVs
Infer values from choices that people actually make (‘revealed preference’)
Ask people about their values and choices in a survey (‘stated preference’)
Hedonic pricing
Environmental values built into market prices of other goods, such as houses (houses have characteristics that influence their price)
People are willing to pay more for things they value positively. With enough sales data, this will be possible to detect
Uses statistics to separate out environmental values
Travel-cost method
Uses recreation expenditure and travel time to impute value people place on visiting a specific site, such as a national park
Different people spend different amounts of time and $ to get to particular environmental asset
If costs less to get there, likely to use that asset more (downward sloping demand curve)
Obtain data about travel costs and visit frequencies from visitors
Use statistics to estimate demand
Calculate consumer surplus
The approach to Hedonic pricing
Obtain data for many house sales, including data for price and each of characteristics
Use statistics to tease of values for each of characteristics
Mainly captures use values (recreation, aesthetics)
Use value vs non use value
Travel cost method purely estimates use values
If non-use values are important, need a different method instead or as well
Revealed preference methods
Strength: based on real behaviour and real decisions
Limitations: only works for certain types of values; cannot estimate non-use values (need stated preference methods for that)
Stated preference methods
Use surveys based on hypothetical choices
Contingent valuation (willingness to pay)
Choice experiments (willingness to trade-off)
Choice experiments
Present people with various sets of benefits and costs and ask them to choose which one they prefer
Hypothetic but perhaps more realistic than contingent valuation
Contingent valuation
Describe an environmental benefit
Ask people one or the other of these questions: what is the most they are willing to pay to secure that benefit? If the benefit was available for a price of $X, would they be willing to pay for it?
Use statistics to estimate mean willingness to pay for different groups in community
Criticisms of NMV
Human focused
Seems wrong to put dollar values on environment
Relies on general community, not experts
NMV studies are not convincing or reliable
Are expensive-not worth it
Command-and-control regulation
Specify a level of pollution that cannot be exceeded
Penalise any firm that exceeds the limit
Firm tries to choose as little abatement as it can (to save costs). The min it can choose is the regulatory limit
Info requirement: MB abatement and MC abatement
Advantages: simple, well accepted approach
Disadvantages: inflexible
Pigouvian tax
Tax on each unit of pollution, equal to the marginal cost of pollution (or the marginal benefit of abatement) at the social optimum
‘Internalising externality’: the people generating externality are made to experience marginal costs or benefits themselves
