Unit 8 - Climate Damages

Question 1

What are the two main components of Total Economic Value?

Answer 1

• Total Economic value comprises use values and non-use values
• use values → direct values (e.g. economic value like services for production/consumption purposes & experience value, and symbolic values like religious & spritiual velues) + indirect values (e.g. functional value)
  
  • also can include option values → future. potential use of direct & indirect values
• non-use values → existence values (e.g. benefits gained from the knowledge of the existence of objects) + other non-use values (e.g. bequest value → benefit of leaving things for future generations)

Question 2

Explain what VOSL stands for and how it’s calculated.

Answer 2

Answer: VOSL stands for Value of Statistical Life.
- Measures change in death risk rather than human life value
- Based on statistical probability of death incidents
- is not the value of actual life but rather society’s aggregate willingness to pay to reduce mortality risk

In the example, for a risk of 1:100,000 where people accept $15 compensation per year, the VOSL is calculated as 15 × 100,000 = 1.5 million dollars.

Question 3

What are the two main methods for determining VOSL?

Answer 3

1. Human Capital Approach
   - VOSL = loss of output minus consumption that any individual life would have been capable to produce
   - Based on potential GDP contribution; results in net change in GDP
2. Willingness Methods (including WTA and WTP)
   - Quantitive determination approaches for WTA and WTP
   
   • Hedonic approach
     
     • Examples : wage differences between safe and risky jobs, safety and insurance expenditures, disease-prevention costs
   • Contingent valuation
     
     • Direct questioning of individuals, e.g. to determine payment willingness for risk reduction

Question 4

In damage cost analysis, what is the basic function relationship described?

Answer 4

Answer: Global climate damage is a function of change in global Temperature, expressed as: global climate damage = f(change in global Temperature)

as global temperatures change, there will be corresponding changes in climate-related damages worldwide as global climate damage is a function of global change in temperature

Question 5

Name three components involved in damage cost analysis.

Answer 5

1. Determination of sectoral and regional climate impacts
2. Monetary valuation
3. Sectoral and regional aggregation
   - combining and summing up climate-related damages across different economic sectors (like agriculture, infrastructure) and geographical regions to calculate total climate impact costs

Question 6

What are the different types of use values mentioned in the text?

Answer 6

• Direct values (economic value and symbolic values)
• Indirect values (functional value)
• Option values (future potential use)

Question 7

What is the application of economic value in the biosphere? What valuation methods are used for determining economic use value?

Answer 7

• application in biosphere - food, biomass, recreation, health
• valuation methods - market analysis, travel cost approach, hedonistic price approach, contingent valuation methods

Question 8

What are examples of functional value applications in the biosphere? What are the valuation methods?

Answer 8

• application in biosphere - ecological functions like flood control, functions in biogeochemical cycles, protection of water resources, pollutant filter, carbon source or sink
• valuation methods - avoided damage costs, expenditure on preventive measures, valuation of changes in productivity, restoration costs

Question 9

What are examples of option value applications in the biosphere? What are the valuation methods?

Answer 9

• application in biosphere - use of genetic potential for medical purposes
• valuation methods - contingent valuation methods (survey based economic method)

Question 10

How is existence value measured and what are its applications in the biosphere?

Answer 10

Measurement: Contingent valuation methods
Applications:
- Natural landscapes that give aesthetic benefits
- World natural heritage

Question 11

Explain the difference between Willingness to Accept (WTA) and Willingness to Pay (WTP).

Answer 11

WTA: Willingness to accept compensation for potential damages (e.g., higher risk of statistical premature death)
WTP: Willingness to pay to avoid premature death