Week 9- Valuing the environment

Question 1

Avoidance cost def and e.g

Answer 1

Cost people incur to avoid the negative consequences of an environmental change
e.g Valuing clean municipal water by the cost to buy water elsewhere if local waterways were degraded (valuing the inconvenience)

Question 2

Restoration cost e.g

Answer 2

valuing ecosystem based on cost to recreate the ecosystem if it was seriously damage
e.g cost of cleaning up oil spill bt reintroducing exterminated plants and animals

Question 3

Replacement cost e.g

Answer 3

valuing clean municipal water by the cost to use human made technology to do what watersheds do naturally to purify water.

Question 4

Revealed preference methods

Answer 4

Methods based on actual market transaction data (use values):

• Hedonic pricing
• travel cost

Question 5

Hedonic pricing

Answer 5

value of a good bc of its characteristics, rather than the good itself e.g Housing price and air quality correlation

Question 6

Hedonic pricing can obtain which values

Answer 6

Use values:

-direct and indirect

Question 7

Travel cost can obtain which values

Answer 7

Use value: direct only

Question 8

Stated preference can obtain which values

Answer 8

Non use and Use

Question 9

Contingent Valuation method (CVM)

Answer 9

elicits WTP values from surveys to preserve (or facilitate) a decrease (or increase) in the quantity or quality of a good.

Question 10

Choice Modelling (CM)

Answer 10

presents respondents with alternative states of the world (policies), defined by choice sets.

Question 11

Strategic bias

Answer 11

inflating one’s WTP in hope of affecting results of the analysis.

Question 12

Approaches to valuing non-market goods

Answer 12

• cost values (e.g avoidance, restoration, replacement)
• Revealed preference (Use Values): (e.g Travel cost (direct use), hedonic pricing (direct and indirect).
• Stated preference: CVM and CM (Use and non-use)
• Benefit transfer

Question 13

Benefit transfer

Answer 13

Apply values from completed studies to a different area where a new decision must be made

Question 14

How to minimise bias with Benefit transfer

Answer 14

• Transfer demand function (value function) not mean WTP
• Similar study sites (e.g ecologically) and in terms of policy environment.
• More rigorous existing study (better data)
• similarity in non-market goods valued
• similar socio-economic characteristics

Question 15

Revealed preference vs Stated preference in using behavioral changes to value an environmental resource

Answer 15

-revealed preference does, state preference does not

Question 16

e. g contingent non-market valuation example of koalas in Queensland.
- 200,000 koalas in QLD
- QLDer’s WTP $200Mill/y
- 6.7ha/koala

Answer 16

=$1000/koala/y
=$150/ha/y
Policies-
A: $150/ha/y SUBSIDY to private forest owners to maintain koala habitat
B: TAXES charge land developers $150/ha/y to clear koala habitat
C: MARKETABLE LAND CLEARING PERMITS - Capped total area of habitat that can be cleared. Developers compete for rights to acquire permits to clear land.
policies are efficient as long as costs (i.e property costs) do not exceed benefits ($200M/y)

Question 17

Bequest Value

Answer 17

Benefit from knowing that our children/future generations will have access to these resources.

Question 18

Existence Value

Answer 18

Value that we hold to know that the resource exists (not actually use resource) e.g pleases you to know that koalas in bris exists even though you may not have seen one

Question 19

Direct Use Value e.g

Answer 19

Extractive: Minerals, logs

non-extractive: Recreation/tourism

Question 20

Indirect use values e.gs

Answer 20

Ecosystem services:

• Wetland water purification
• carbon sequestration

Question 21

Option value e.g

Answer 21

By refraining of using the resource now, there is the option to harvest it in the future if necessary (e.g if desperate can log nation park)

Question 22

Pros and cons of cost values

Answer 22

Pros:
-More direct and easier to measure than stated or revealed preference approaches
Problem with avoidance cost: disutility e.g carrying bottled water home instead of tap utility
Problems with restoration and replacement cost: does replacement/restoration equate original environmental service.

Question 23

Travel cost model basic premise

Answer 23

travel cost to a site can be regarded as the price of access to the site.

Question 24

Objective of TCM

Answer 24

CS of recreationists

Question 25

Full TCM demand curve

Answer 25

y-travel cost ($)
x-visitation (Q)
trying to calculated CS, above actual fuel costs

Question 26

TCM 2 assumptions

Answer 26

1. People demand less recreation as travel cost increases

2. recreationists react to higher travel costs the same way they would to entry fees

Question 27

TCM 2 assumptions

Answer 27

1. People demand less recreation as travel cost increases

2. recreationists react to higher travel costs the same way they would to entry fees

Question 28

Hedonic wage method (value of a human life)

Answer 28

• worker compensated $1000/year for a 0.1% additional risk of dying.
  i. e collective willingness to accept being exposed to a 0.1% risk of dying (1/1000 people) is $1000x1000people = 1M
• This is a statistical life

Question 29

Hypothetical bias

Answer 29

• people not taking survey seriously, bc of belief that not will come of it

Question 30

Information bias

Answer 30

e.g highlighting environmental implications and omitting economic info

Question 31

Interviewer bias

Answer 31

Interviewer elicits responses to reflect their standpoint

Question 32

Payment vehicle bias

Answer 32

• one willingness to pay changes based on fund organisation e.g one won’t be willing to contribute money to federal gov but will for a non-for profit organisation

Question 33

Steps in applying choice modelling

Answer 33

1. Characterisation of the decision problem (e.g geographical scope, focus groups)
2. Attribute selection
3. Experimental design development (reducing attribute combinations)
4. Questionnaire creation
5. Data collection issues
6. Model estimation
7. Policy analysis

Question 34

CVM vs CM

Answer 34

• in CM, respondents don’t perceive that they’re actually stating WTP
• CM avoids bias
• CVM only elicits 1 (or 2) WTP estimates, where CM have choice sets; far more information about respondents preferences

Question 35

Weeknesses of CM

Answer 35

• may have higher cognitive burden
• Framing issues (i.e choice sets don’t represent policy options preferred by the respondent)
• Increased contingencies
• complex data analysis (with increased contingencies)