Measuring Environmental Benefits

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Measuring Environmental Benefits
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In principle, benefits can be represented by
consumer surplus, or the area under the demand
curve
Market good sold at price P0
Non-market good -- no price
P0
Q0
Q0
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Two Approaches

• Willingness to pay (WTP) how much would people
  be willing to pay for an increase in
  environmental quality?
• Willingness to accept (WTA) how much would
  people have to be paid in compensation in order
  to induce them to accept a reduction in
  environmental quality?
• In practice, WTP and WTA might be different, with
  WTA WTP.

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Averting Expenditure Method

• The value of an improvement in environmental
  quality can be inferred from peoples
  expenditures on other things (such as air
  conditioning, water filters, or medical care)
  that help them cope with environmental problems.
• Examples
• Use of seat belts or smoke detectors measure the
  value of a statistical life saved
• Purchases of bottled water measure the value of
  avoiding water pollution
• Visits to the doctor or use of air conditioning
  measure the value of avoiding respiratory
  illnesses
• Farmers adjustments in fertilizer use or area
  under cultivation due to air pollution can
  measure the damages associated with the pollution

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Complementarity Method

• The value of an improvement in environmental
  quality can be inferred from peoples
  expenditures on complementary goods, or goods
  that tend to be consumed along with the
  environmental amenity.
• Example
• Number of visits to a lake can be used to measure
  the value of improved water quality

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Travel-Cost Method

• The value of a public park or recreational site
  can be inferred from data on the travel costs
  people incur to visit the site.
• Example
• Value of improved water quality
• Value of hunting permits
• Value of recreation sites

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Hedonic Price (or Wage) Method

• The costs associated with pollution, proximity to
  a landfill, or a health hazard might be reflected
  in the property values of people living nearby,
  so comparisons of property values between
  different locations can provide evidence on
  environmental damages.
• Alternatively, differences in wages between a
  risky occupation and a less risky one can measure
  the benefits of lower risks.
• Examples
• Value of improved visibility
• Value of a location farther from a hazardous
  waste site
• Value of a statistical life saved due to
  reduced exposure to a toxic substance

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Contingent Valuation Method

• Economists conduct a carefully designed survey to
  elicit information about peoples valuations of
  an amenity or a change in public policy.
• This is the only method that can measure nonuse
  values (which could include existence values or
  option values).

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Contingent Valuation Method

• Examples
• Value of avoiding respiratory illnesses
• Value of improved water quality, fish catch,
  boating or swimming opportunities
• Value of improved visibility
• Nonuse value of clean air in the Grand Canyon
• Value of preserving threatened species whooping
  cranes, bald eagles