Unit 5: Valuation Techniques: Ch. 6 Flashcards
What are Nonmarket Benefits
Benefits not obtained from G&S sold in markets
What is Willingness to Pay
Value people obtain from a resource
What is Willingness to Accept
Min. amount people would accept as compensation for an action that reduces their well being
How can you measure Economic Value
WTP
WTA
What are Use Values
tangible benefits that can be physically observed
Direct
Indirect
What is Direct Use Value
Deliberate decision to use a natural resource and the value one obtains from that
-Financial profits
-physical interaction
-leaving resource untouched
What is Indirect Use Value
Tangible benefits WITHOUT any effort on our part
Ecosystem services
What are Non Use Values
Intangible well being benefits derived from the environment
Option: may wish to use in future
Bequest: wish to be avail for future generatin
Existence: benefit from knowing resource exists
What are 2 Ways of Economic Values
Total Economic Value: sum of different USE and NONUSE values of a resource
Cost-Benefit Analysis: tool that monetizes all costs and benefits of a proposed actcion to determine net benefit
Valuation techniques (5)
-Market Valuation: Cost-Benefit/ Producer-Consumer
-Cost of Illness Method: monetizes direct/indirect costs assoc. with illness attributed to enviro factors
-Replacement cost method: estimates indirect-use value of ecosystem services
-Revealed Preference Method: Indirectly infers peoples value based on market decisions
-Stated Preference Methods: surveys to find out people’s preferences for hypothetical scenarios
What is Habitat Equivalency Analysis
determine appropriate amount of ecological restoration to offset the ecological losses from an accident
estimates economic damage of accidental hazardous releases
funding comes from company doing damage
Controversial:
-not sufficient data on baseline conditions
-not accounting for cultural/nonuse values
What are the 3 Revealed Preference Methods
-Travel Cost Models
-Hedonic Pricing
-Defensive Expenditure
What is the Travel Cost Model
Estimate Value of natural recreation site
What are the limitations of the the Travel Cost Model
Estimates only recreational use value
Does NOT estimate indirect/nonuse benefits: does NOT provide total economic value
What is Meta Analysis
quantitative review of existing research studies to identify factors that produce differences in results across studies
What is Hedonic Pricing
The price of a good as a function of several components
Relate price of a market good to underlying characteristics
What is Defensive Expenditure Model
based on expenditures households take to avoid or mitigate their exposure to pollutant
What are limitations of Defensive Expenditure
-only provides minimum WTP
-may overestimate WTP: may be doing something for more than enviro reasons
What are 2 Stated Preference Methods
-Contingent Valuation
-Contingent Ranking
What is Contingent Valuation
Surveys to understand person’s WTP/ WTA for hypothetical scenario
WTA tends to be larger
What is the Endowment Effect
people place high value on something they already possess
What are the Biases of Contigent Valuation
-Strategic Bias: to influence policy
-Yea-saying: believes yes is correct
-Range-bias: give answer in mid range
-Protest Bids: feel they already pay enough
-Nonresponse Bias:
Recommendations on how to make Contigent Valuation more acceptable
-in person
-WTP over WTA
-Yes/No with specific price
-Follow up questions
-remind respondents of income restraints
Critics of Contingent Valuation
-tendency to exaggerate WTP
-ethical issues: tends to preferences of wealthier respondents
-fails to address issue of rights and responsibilities
What is Contigent Ranking
Given list of alternatives
No monetary values
What is Economic Value of Natural Resources Based on
Willingness to Pay
