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Environmental Economics: Valuation Techniques and Total Economic Values, Slides of Environmental Economics

Indian Institute of Tourism and Travel Management Environmental Economics

An overview of environmental economics, focusing on valuation techniques and total economic values. It covers the concepts of use values, non-use values, existence value, option value, and quasi-option value. The document also discusses welfare measures, such as consumer surplus, compensating variation, and equivalent variation, as well as the differences between wtp and wta.

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Environmental Economics

Valuation Techniques

Environmental Values

nValues come from relative scarcity

nInfer value from WTP or WTA

nMarket Prices or Shadow Prices

n“Commodification” of the services

nDemand for Environmental

Protection= derived demand from

services that environmental

protection provides

Environmental Values

nPrivate preferences of individuals

nPublic preferences

nPhysical processes and systems

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Download Environmental Economics: Valuation Techniques and Total Economic Values and more Slides Environmental Economics in PDF only on Docsity!

Environmental Economics

Valuation Techniques

Environmental Values

n Values come from relative scarcity

n Infer value from WTP or WTA

n Market Prices or Shadow Prices

n “Commodification” of the services

n Demand for Environmental

Protection= derived demand from

services that environmental

protection provides

Environmental Values

n Private preferences of individuals

n Public preferences

n Physical processes and systems

Total Economic Values

n TEV= Personal Use Values + Non-use

Values

Value Dimensions

n Use Value

n Direct n Indirect

n Non-use Value

n Option value

n Quasi-option value n Existence value

n Bequest Value

Definitions

n Existence Value = WTP that stems from knowledge that a service will continue to exist regardless of use by individual

n Option value = WTP for use in future when demand is uncertain

n Quasi-option value = WTP to avoid irreversible decisions in expectations of future technological advance or growth in knowledge (e.g. shark extinction plus cure for cancer)

Total Benefits—Welfare

Measures

n Benefits from increasing the supply of

a good or service are measured by the

change in consumer surplus

n = Area under the demand curve and

above the price paid for the good

n Demand Curve is the marginal

willingness to pay curve

n Area under curve up to equilibrium

quantity is TWTP

Welfare Measures

n Consumer Surplus can be used to

provide a monetary measure of

changes in individual’s utility when

prices change

Welfare Measures of

Changes in Prices

n Compensating Variation

n Equivalent Variation

n Hicks vs. Marshall

Compensating Variation

n Change in income that would

compensate and individual for a price

change

Equivalent Variation (EV)

n Change in income that would be the

equivalent to the proposed price

change

Marshall vs. Hicks

n Marshall uncompensated demand curves (how quantity varies with prices when income and all other prices held constant) n Hicks compensated demand curves (how quantity varies with prices when utility and all other prices held constant) n Not equal to one another; Hicks corrects for income effect

Welfare Measures

WTP to obtain

WTA to accept

CV = Implied Property right in the status quo

WTA to forgo

EV = Implied WTP to avoid Property right in the change

Price decrease

Price Increase

Welfare Measure

For normal commodity

n WTP less then MCS less then WTA

n Ok if we get WTP or WTA

n Otherwise use MDC (if income effect is

small, differences are small)

Welfare Measures for

Changes in Quantities

n Compensating Surpluses

n Equivalent Surpluses

Monetary measures for

Environmental Quality Changes

CS ES

WTP for change not to occur

WTA for change occurring

Deteriorat e-tion

WTA com- pensation for the change

WTP for change occurring

Improve- ment

Valuation Categories

n Market Valuation (direct)

n Stated Preferences (direct)

n Revealed Preferences (indirect)

n Benefit Transfers (indirect)

Alternative Categores

Contingent rankings

TravelCost Hedonic

Indirect

Competitive WTP CVM Mkt prices

Direct

Hypothetic al

Observed Behavior

Choice of Techniques and

Impacts

Environmental Economics: Valuation Techniques and Total Economic Values, Slides of Environmental Economics

Related documents

Partial preview of the text

Download Environmental Economics: Valuation Techniques and Total Economic Values and more Slides Environmental Economics in PDF only on Docsity!

Valuation Techniques

n Values come from relative scarcity

n Infer value from WTP or WTA

n Market Prices or Shadow Prices

n “Commodification” of the services

n Demand for Environmental

Protection= derived demand from

services that environmental

protection provides

n Private preferences of individuals

n Public preferences

n Physical processes and systems

n TEV= Personal Use Values + Non-use

Values

n Benefits from increasing the supply of

a good or service are measured by the

change in consumer surplus

n = Area under the demand curve and

above the price paid for the good

n Demand Curve is the marginal

willingness to pay curve

n Area under curve up to equilibrium

quantity is TWTP

n Consumer Surplus can be used to

provide a monetary measure of

changes in individual’s utility when

prices change

n Compensating Variation

n Equivalent Variation

n Hicks vs. Marshall

n Change in income that would

compensate and individual for a price

change

n Change in income that would be the

equivalent to the proposed price

change

n WTP less then MCS less then WTA

n Ok if we get WTP or WTA

n Otherwise use MDC (if income effect is

small, differences are small)

n Compensating Surpluses

n Equivalent Surpluses

CS ES

n Market Valuation (direct)

n Stated Preferences (direct)

n Revealed Preferences (indirect)

n Benefit Transfers (indirect)