The Benefit Received From the Continuance of an Environmental Good is Called
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Chapter 7 Assessing Benefits for Environmental Decision Making © 2004 Thomson Learning/South-Western
Identifying and Valuing Environmental Benefits: Conceptual Issues l Defining Incremental Benefits ¡ Incremental benefits – the reduction in health, ecological, and property damages associated with an environmental policy initiative 2
Identifying and Valuing Environmental Benefits: Conceptual Issues l Defining Primary and Secondary Environmental Benefits ¡ ¡ Primary environmental benefit – a damage-reducing effect that is a direct consequence of implementing environmental policy Secondary environmental benefit – an indirect gain to society that may arise from a stimulative effect of primary benefits or from a demand-induced effect to implement policy 3
Identifying and Valuing Environmental Benefits: Conceptual Issues l Conceptually Valuing Environmental Benefits ¡ ¡ Problem is that environmental quality is a public, nonmarketed good Inferring society's demand for quality allows for measuring the incremental benefits associated with any environmental policy 4
Identifying and Valuing Environmental Benefits: Conceptual Issues Figure 7. 1 Marginal Social Benefit (MSB) and Total Social Benefits (TSB) of Air Quality (% SO 2 Abatement) 5
Identifying and Valuing Environmental Benefits: Conceptual Issues Figure 7. 2 Modeling Incremental Benefits for Air Quality (% SO 2 Abatement) using the MSB Function 6
Identifying and Valuing Environmental Benefits: Conceptual Issues Figure 7. 3 Modeling Incremental Social Benefits for Air Quality (% SO 2 Abatement) Using the TSB Function 7
Identifying and Valuing Environmental Benefits: Conceptual Issues l User Versus Existence Value ¡ ¡ ¡ User value – benefit derived from physical use or access to an environmental good Existence value – benefit received from the continuance of an environmental good Total value of environmental quality = User value + Existence value 8
Identifying and Valuing Environmental Benefits: Conceptual Issues l User Value ¡ ¡ Direct user value – benefit derived from directly consuming services provided by an environmental good Indirect user value – benefit derived from indirect consumption of an environmental good 9
Identifying and Valuing Environmental Benefits: Conceptual Issues l Existence Value ¡ ¡ Vicarious consumption – the utility associated with knowing that others derive benefits from an environmental good Stewardship – the sense of obligation to preserve the environment for future generations 10
Approaches to Measuring Environmental Benefits: An Overview l Physical Linkage Approach to Environmental Benefit Valuation ¡ Physical linkage approach – estimates benefits based on a technical relationship between an environmental resource and the user of that resource 11
Approaches to Measuring Environmental Benefits: An Overview l Behavioral Linkage Approach to Environmental Benefit Valuation ¡ Behavioral linkage approach – estimates benefits using observations of behavior in actual markets or survey responses about hypothetical markets l Direct methods – techniques that assess responses immediately related to environmental changes l Indirect methods – techniques that examine responses about some set of market conditions related to the environmental good 12
Estimation Under the Physical Linkage Approach l Damage Function Method – models the relationship between a contaminant and its observed effects as a way to estimate damage reductions arising from policy ¡ ¡ Assessing the Damage Function Method l Estimates only one aspect of incremental benefits l Not capable of simultaneously monetizing the benefits it quantifies Applications of the Damage Function Method l Typically used for measuring a specific type of incremental benefit 13
Estimation Under the Physical Linkage Approach Figure 7. 4 Measuring Incremental Benefits Using the Damage Function Method, A Physical Linkage Approach 14
Estimation Under the Physical Linkage Approach Figure 7. 5 Modeling Incremental Benefits of an Ozone-Reducing Policy 15
Direct Estimation Methods Under the Behavioral Linkage Approach l Contingent Valuation Method (CVM) – uses surveys to elicit responses about WTP for environmental quality based on hypothetical market conditions ¡ ¡ Assessing the CVM l Can be applied to a variety of environmental goods l Can assess existence value as well as user value l Subject to bias Applications of the CVM l Estimation of the value of a statistical human life l Measuring society's WTP for water quality improvements 16
Indirect Estimation Methods Under the Behavioral Linkage Approach l Averting Expenditure Method (AEM): An Indirect Approach Using Substitutes ¡ ¡ ¡ Averting expenditure method – estimates benefits as the change in spending on goods that are substitutes for a cleaner environment Assessing the AEM l Jointness of production – the fact that some averting expenditures yield benefits beyond those associated with a cleaner environment Applications of the AEM l Wearing of seatbelts to reduce mortality risk 17
Indirect Estimation Methods Under the Behavioral Linkage Approach Figure 7. 6 Measuring Incremental Benefits Using the Averting Expenditure Method (AEM) A Behavioral Linkage Approach 18
Indirect Estimation Methods Under the Behavioral Linkage Approach l Travel Cost Method (TCM): An Indirect Approach Using Complements ¡ ¡ ¡ Travel cost method (TCM) – values benefits by using the complementary relationship between the quality of a natural resource and its recreational use value Assessing the TCM l Estimates only user value and not existence value l Focuses on recreational use l Estimates can bias downward if access to a site is deterred by congestion Applications of the TCM l Used to value improvements to water bodies 19
Indirect Estimation Methods Under the Behavioral Linkage Approach l Hedonic Price Method (HPM): An Indirect Approach Using Product Attributes ¡ ¡ ¡ Hedonic price method (HPM) – uses the estimated hedonic price of an environmental attribute to value a policy-driven improvement Assessing the HPM l Highly intuitive l Requires extensive data on product characteristics Applications of the HPM l Measuring how siting of hazardous waste facilities affects prices of nearby properties 20
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