EC238 Chapter Notes - Chapter 7: Economic Surplus, Revealed Preference, Demand Curve
Chapter 7 – Benefit Cost Analysis: Benefits
To measure a complete emissions damage function, it is necessary to go through the following steps:
1. Measure emissions
2. Determine the resulting ambient quality
3. Estimate human exposure
4. Measure impacts (health, aesthetic, recreation, ecosystem)
5. Estimate the values of these impacts
There are two ways to measure individual’s valuation of environmental damages
Willingness to pay to avoid damage
Their willingness to accept (WTA) compensation for damages incurred, e.g. how much does he
want to get paid to lose that 1 unit, 1 less unit
Four ways of trying to find out how much people are willing to pay for improvements in environmental
quality:
Preventive or mitigating expenditures – having double thick glass in the windows for a quieter
environment
Hedonic estimation – noise in the vicinity of the roads may have affected the prices that people
have paid for their houses
Surrogate markets – takes travel costs as a proxy for price, e.g. people who go to national and
provincial parks, swimming and fishing experience, wildlife viewing, you can view these travel
costs as a proxy for the price that people must pay to experience the environmental amenity
oTravel cost method – difficulties encountered:
Multipurpose visits – the site may not be the final destination
Utility/disutility from travelling – travel to the site may be an enjoyable part of
the trip or very unpleasant
Sampling biases in surveys – it only samples users of the site, may over estimate
or under estimate WTP for environmental quality improvements
Contingent valuation – conducting a survey among homeowners and ask them how much they
are willing to pay for reductions in noise levels around and inside their homes, basically just
asking mandems what’s their WTP
oMajor Criticisms on this method:
Hypothetical character – they might not even know themselves of what their
WTP may be because they don’t know their preference
find more resources at oneclass.com
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Document Summary
To measure a complete emissions damage function, it is necessary to go through the following steps: measure emissions, determine the resulting ambient quality, estimate human exposure, measure impacts (health, aesthetic, recreation, ecosystem, estimate the values of these impacts. There are two ways to measure individual"s valuation of environmental damages. Their willingness to accept (wta) compensation for damages incurred, e. g. how much does he want to get paid to lose that 1 unit, 1 less unit. Four ways of trying to find out how much people are willing to pay for improvements in environmental quality: Preventive or mitigating expenditures having double thick glass in the windows for a quieter environment. Hedonic estimation noise in the vicinity of the roads may have affected the prices that people have paid for their houses. Multipurpose visits the site may not be the final destination. Utility/disutility from travelling travel to the site may be an enjoyable part of the trip or very unpleasant.
