Valuing the Environment

Question 1

Revealed willingness to pay methods:

Answer 1

1. Market Price Method => Direct goods
2. Productivity Method => Production good
3. Hedonic Pricing Method => Recreational area that will give a higher price to other good (i.e house)
4. Travel Cost Method => willing to pay to travel to a place
5. Cost of Illness Approach => adverse health effects

Question 2

Stated (expressed) Willingness to Pay Methods:

Answer 2

1. Contingent Valuation Method => survey -How much are they willing to pay?
2. Contingent Choice Method => survey -Choose between different alternatives

Question 3

Imputed Willingness to pay methods:

Answer 3

1. Damage Cost Avoided Method
2. Replacement Cost Method
3. Substitute Cost Method
4. Benefit Transfer Method

Question 4

Market price method advantages and disadvantages:

Answer 4

Advantages:
• Price, quantity and cost data are relatively easy to obtain from established markets.
•Uses observed data of actual consumer preferences.
•Uses standard, accepted economic techniques.
Issues and Limitations:
• The true economic value of goods or services may not be fully reflected in
market transactions, due to market imperfections and/or policy failures.
•Seasonal variations and other effects on price must be considered.
•The method cannot be easily used to measure the value of larger scale
changes that are likely to affect the supply of or demand for a good or service.

Question 5

Productivity method advantages and disadvantages:

Answer 5

Advantages:
• Methodology is straightforward.
• Data requirements are limited, and the relevant data may be readily available, so the method can be relatively inexpensive to apply.
Issues and Limitations:
• Limited to valuing those resources that can be used as inputs in the production of marketed goods.
•Not all services will be related to the production of marketed goods
=> the inferred value of that ecosystem may understate its true value to society.
• If changes in the natural resource affect the market price of the final good, or the prices of other production inputs, the method becomes more complicated and difficult to apply.

Question 6

Hedonic pricing method advantages and disadvantages:

Answer 6

Advantages:
• Estimates values based on actual choices.
• Property markets are relatively efficient in responding to information, so can be good indications of value.
• Property records are typically very reliable.
Issues and Limitations:
• The scope of environmental benefits that can be measured is limited to things that are related to housing prices.
• Will only capture people’s willingness to pay for perceived differences in environmental attributes.If people aren’t aware of the linkages between the environmental attribute and benefits to them or their property, the value will not be reflected in home prices.
• Complex to implement and interpret; large amounts of data needed; expensive

Question 7

Travel cost method advantages and disadvantages:

Answer 7

Advantages:
• Method is based on actual behavior—what people actually do—rather than stated willingness to pay.
• On-site surveys provide opportunities for large sample sizes, as visitors tend to be interested in participating.
• Relatively inexpensive to apply.
• Results are relatively easy to interpret and explain.
Issues and Limitations:
• Most models assume that individuals take a trip for a single purpose – to visit a specific recreational site => value of the site may be overestimated.
• Defining and measuring the opportunity cost of time, or the value of time spent travelling, can be problematic.

Question 8

Contingent valuation method (CVM) advantages and disadvantages

Answer 8

Advantages:
-Most widely used method for estimating non-use values
- Flexible in that it can be used to estimate the value of virtually anything. However, best for goods and services that are easily identified and understood by users
Issues and Limitations:
•Considerable controversy over whether it adequately
measures people’s willingness to pay for environmental quality.
• Complicated, lengthy, and expensive
• Survey must be properly designed, pre-tested, and
implemented
•If people are first asked for their willingness to pay for one part of an environmental asset (e.g. one lake in an entire system of lakes) and then asked to value the whole asset (e.g. the whole lake system), the amounts stated may be similar => “embedding effect.”

Question 9

Contingent choice method adv and disadv

Answer 9

Advantages:
•allows respondents to think in terms of tradeoffs, which may be easier than directly expressing dollar values.
• Respondents are generally more comfortable providing qualitative rankings or ratings of attribute bundles that include prices, rather than dollar valuation
•has the potential to reduce problems such as expressions of symbolic values, protest bids, and some of the other sources of potential bias associated with
contingent valuation.
Issues and Limitations:
•When presented with a large number of tradeoff questions, respondents may
lose interest or become frustrated.
• By only providing a limited number of options, it may force respondents to make choices that they would not voluntarily make.
•Contingent ranking requires more sophisticated statistical techniques to estimate willingness to pay.
• validity and reliability for valuing non-market commodities is largely untested

Question 10

Benefit transfer method adv and disadvantages

Answer 10

Advantages:
• Less costly and quick
• The method can be used as a screening technique to determine if a more detailed, original valuation study should be conducted.
• The more similar the sites and the recreational experiences, the fewer biases will result.
Issues and Limitations:
• It may be difficult to track down appropriate studies; difficult to assess them…

Question 11

Damage cost avoided method
Replacement cost method
Substitute cost method
advantages and disadvantages:

Answer 11

Advantages:
•Rough indicator of economic value, subject to data constraints and the
degree of similarity or substitutability between related goods.
• Less data- and resource-intensive.
Issues and Limitations:
•The goods or services being replaced probably represent only a portion of the full range of services provided by the natural resource =>underestimate benefits
• Methods assume that expenditures to repair damages or to replace ecosystem services are valid measures of the benefits provided.
However, costs are usually not an accurate measure of benefits.
• Methods do not consider social preferences for ecosystem services, or individuals’ behaviour in the absence of those services => should be used
as a last resort to value ecosystem services.
• Few environmental resources have such direct or indirect substitutes.