Topic 8: Environmental Valuation Methods

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Topic 8 Environmental Valuation Methods

• David Letson
• Marine Affairs/Economics
• University of Miami

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Main Points

• Hedonic Price Method
• Travel Cost Method
• Benefits Transfer Method
• Approaches, examples, pros cons

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Recall Why value?

• Resources are scarce.
• Tradeoffs must be made.
• In markets we have clear information.
• Zero price doesnt mean zero value.
• Methods for imputing economic values.

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Hedonic Price Method

• Property prices as indirect indicator.
• Observable market transactions.
• Enabling feature complementarity, or bundling of
  environmental amenity.
• Use and option values.

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Value of Land Due to its Benefits.

• access to workplace or schools,
• agricultural output, and
• environmental quality.
• How much of a property value is due to an
  attribute?

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Statistical Approach

• Property values differ for many reasons.
• Control for other influences.
• Excluded relevant variables.
• Included irrelevant variables.

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New Bedford (MA) harbor

• Damages from PCBs.
• Other influences
• interest rates,
• home improvements,
• time between sales,
• property taxes, and
• income.
• Authors find 36M damages
• firms responsible paid 20M.

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Beach Renourishment Valuation (I)

• Barrier islands vulnerable to erosion.
• Who should pay?
• Owners rejected 900K project in 95.
• Moral hazard.
• Flood control recreation benefits.
• Increases price of property.

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Beach Renourishment Valuation (II)

• Study Seabrook Island, SC.
• Privately developed. Access owners only.
• Sample 238 developed properties and 297 vacant
  lots sold between 1989 and 1994.
• Beach width 6 month average high tide.
• Other variables time on market, distance, ocean
  front/view, size of lot/structure.

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Beach Renourishment Valuation (III)

• Authors set fees by benefits received.
• Value of wider beach for average property at
  different distances from beach for an increase in
  beach width from 322 feet to 472 feet
  (1989).Location Developed VacantOceanfron
  t 23,000. 36,000.Oceanview 13,000. 33,0
  00.Inland 8,000. 6,000.

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Travel Cost Method

• Expenditure to gain access
• entry fees,
• costs of getting there, and
• foregone earnings.
• Travel cost as indirect indicator
• observable market transactions
• complementarity

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Comparing Visits and Travel Costs

• Tracking one site through time
• Comparing substitute sites
• Impute value to site attributes
• Value is change in consumer surplus

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Statistical approach

• WTP for water quality improvements to fishing.
• Visitation f(income, education, travel cost,
  water quality, substitute sites)
• Regression controls for other influences.

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Saltwater beach recreation

• Authors Fred Bell and Bob Leeworthy (1990)
• Airport intercept survey of FL tourists
• visitation days, expenses, age, income, crowds,
  length of stay
• Inelastic demand
• Avg tourist spent 4.7 days on beach at
  expense/day of 85
• Avg consumer surplus of 38
• Recreational benefit of 2.37B annually.

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Benefits Transfer

• What if time or resources are short?
• We can use results from other studies.
• Are conditions similar?
• How good is the original study?
• Meta analysis

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Other methods

• dose/response
• replacement cost
• averting expenditure

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Which Method is Best?

• Which uses are to be valued?
• Who is audience?
• Availability of market information

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A More General Problem

• Linking behavior to user values.
• Marine recreational benefits cleaner water.
• We know discharges, catches, visits.
• However, we do not know
• ambient contaminant levels
• stock abundance and
• likelihood of recreational catch.