Upcoming in Class

1. Upcoming in Class • Extra Credit: http://www.ecologyactioncenter.org/wp/hhw-volunteer-signup/ • Homework #2 Due Sept. 16 • Exam #1 Sept. 16 • Chapters 3, 4, 6 • Writing Assignment Due Oct. 23rd

2. Public Good Problem • Four towns share a common water source. By buying open land along the watershed, they can preserve its purity from sewage, road runoff, etc. • The land demand schedule for each town based on water treatment costs saved can be expressed as: • P=$34,000 – 10 Qd • Where Qd is acres purchased • And P is the price the town would be WTP

3. Public Good Problem Suppose the land cost $30,000 per acre. How much land will be purchased if each town operates independently? How much if they form a joint commission for land purchases? Which is the socially efficient solution and why?

4. Public Good Problem How would the answer change if the price of land were $36,000? In this scenario, are the characteristics of water a private or public good?

5. Chapter 6 • p. 107-121 and 134-136 • Using Cost/Benefit Analysis • Discuss methods of valuation • Stated vs. Revealed Preferences • Classify environmental values

6. Methods of evaluating a policy • Cost/Benefit • A tool for policy analysis that attempts to monetize all the costs and benefits of a proposed action to determine the net benefit. Typically through stated or revealed preference metrics.

7. Issues in Benefit Estimation • Tendency to overstate benefits and understate costs in policy analysis. • For example, cigarette companies will overstate the benefits of smoking. • Who reaps benefits and who reaps costs? Efficiency is not the only criteria in the policy arena. Equity may also be a concern. • http://journals.lww.com/lww-medicalcare/Abstract/2000/04000/Are_Preferences_for_Equity_Over_Efficiency_in.3.aspx • How do we deal with uncertainty and risk in measuring cost/benefits?

8. Revealed Preferences • Individuals reveal their value through their actions and choices • Direct and observable methods • Market price • Indirect and inferred methods • Travel Cost • Hedonic values • Avoidance Expenditures • Replacement Cost • Lake Bloomington: http://lakebloomington.com/Lake_Bloomington/Welcome.html

9. Travel Cost Model • Used primarily to estimate the value of various recreational activities such as fishing, hiking, camping and hunting. • In this approach, travel costs incurred in getting to a recreation site serve as a proxy for the price of recreation at the site. • Statistical methods are used to estimate a demand curve for a recreation site using data on travel costs, distance to the site, and other socio-demographic variables. • Does not capture option, existence, or bequest values

10. Environmental Values • Non-use value- values people obtain without actually using a resource • Existence value- the value people place on the continued existence of a resource, such as the benefit of knowing acres of the rainforest have been preserved • Option value- the value people place on maintaining future resource use options • Bequest value-value people place on the knowledge that a resource will be available for future generations

11. Environmental Values • Use value – the value that people place on the use of a good or service • Direct use value- the value one obtains by directly using a natural resource, such as visiting a national park • Indirect use value- ecosystem benefits not valued in markets, such as flood prevention or pollution absorption.

12. Hedonic values • Value relative to a characteristic, uses regression analysis (stat. technique) • Hard to separate environmental factors from other housing characteristics • Hedonic property values – • Use market data on houses, break down the house’s characteristics, environmental characteristics and compares the differences

13. Avoidance costs: • The amount people must pay to avoid the adverse effects of the environmental damage. • Involves examining averting or defensive expenditures • Air purifiers for air pollution • Bottled water for water quality • A problem with this measure is that it only considers adverse effects to humans who directly use the resource. As such, other sources of value and costs are neglected.

14. Replacement and restoration costs: • How much would it cost to replace or restore the damaged/destroyed resource? • A major problem here concerns equivalence. Is the replacement or restoration equivalent to that which was initially harmed. If not, this measure of value is not accurate. • http://www.bnl.gov/erd/peconic/factsheet/wetlands.pdf

15. Stated Preferences Individuals state their value. Used when value is not directly observable (i.e. non-use values) Typically done in survey form.

16. Contingent Valuation • Survey to elicit responses of valuation. • How much are you willing to pay? • Would you pay $X to preserve or prevent change? • Biased • Discrepancy between WTP and WTA • WTP - for quality improvements • WTA – for a loss • Strategic bias – respondents provide biased answers to influence results • Information bias – respondents have little or no experience • Starting-point bias – predefined range • Hypothetical Bias – respondents treat survey casual and give poor answers • Economists working to improve estimation methods • CV analysis use in court cases all the time • Meta –analysis – “analysis of analyses”

17. Alternative methods of evaluating a policy • Cost Effectiveness • Set a minimum or maximum standard • Evaluate policies on that criterion • All efficient policies are cost-effective, but not all cost-effective policies are efficient. • Impact Analysis • List of potential impacts both environmental and economic.

18. Upcoming in Class • Extra Credit: http://www.ecologyactioncenter.org/wp/hhw-volunteer-signup/ • Homework #2 Due Sept. 16 • Exam #1 Sept. 16 • Chapters 3, 4, 6 • Writing Assignment Due Oct. 23rd