Handbook of Environmental Economics: Valuing Environmental Changes (Volume 2) (Handbook of Environmental Economics, Volume 2)

Much applied environmental economics is concerned with the valuation of changes in environmental quality. Obtaining reliable valuation estimates requires attention to theoretical and econometric issues that are often quite subtle. Volume 2 of the Handbook of Environmental Economics presents both the theory and the practice of environmental valuation. It synthesizes the vast literature that has accumulated since the publication of the Handbook of Natural Resource and Energy Economics two decades ago. It includes chapters on individual valuation methods written by researchers responsible for fundamental advances in those methods. It also includes cross-cutting chapters that deal with aspects of welfare theory, uncertainty, experimental methods, and public health that are pertinent to valuation. Throughout the volume, attention is paid to research and policy issues that arise not only in high-income countries, where most of the theory and econometrics that underlie applied valuation methods have been developed, but also in poorer parts of the world. The volume provides a state-of-the-art reference for scholars and practitioners alike. 1.pdf......Page 1 2.pdf......Page 2 Allen Kneese......Page 6 4.pdf......Page 7 Acknowledgements......Page 11 5.pdf......Page 13 Welfare Theory and Valuation......Page 21 Keywords......Page 22 Introduction......Page 23 The nature of economic value......Page 24 Overview of the environmental valuation problem......Page 26 Defining a measure of welfare change......Page 29 Price changes......Page 32 Toward measurement......Page 34 Changes in environmental quality......Page 36 Uncertainty and risk......Page 38 Aggregation and social welfare......Page 39 Revealed preference methods......Page 42 Stated preference methods......Page 43 Revealed preference methods for estimating values......Page 44 A taxonomy of models......Page 45 Perfect substitution......Page 46 Imperfect substitution......Page 48 Defensive expenditures......Page 49 Applications to human health effects......Page 50 Complementary relationships......Page 53 Why the weak complementarity restriction is so useful......Page 54 Weak complementarity in a household model......Page 57 Exploiting other relationships, including weak neutrality......Page 59 Welfare in a discrete choice context......Page 60 Hedonic models......Page 62 Hedonic property value models......Page 63 Hedonic wage models......Page 65 Use and nonuse values......Page 67 References......Page 70 Environment, Uncertainty, and Option Values......Page 75 Abstract......Page 76 Keywords......Page 77 Introduction......Page 78 The basic framework......Page 79 Risk aversion......Page 80 The value of changes in risk......Page 81 Aggregation over individuals......Page 84 The cost of risk bearing......Page 86 Option prices and option values......Page 89 Price uncertainty......Page 91 Introduction......Page 93 A simple two-period model......Page 94 An empirical application: to develop or to preserve......Page 97 Bayesian updating......Page 99 Information structures......Page 100 Irreversibility......Page 102 Irreversibility at a cost......Page 105 The value of information......Page 108 Uncertainty about irreversibility......Page 109 Option values......Page 111 Investment under uncertainty......Page 113 Optimal stopping......Page 115 Continuous time and stochastic processes......Page 116 An application: when to cut an old-growth redwood forest......Page 118 on the equivalence of two representations of environmental changes......Page 120 a different notion of ``more informative''......Page 121 References......Page 122 Further reading......Page 123 Valuing the Environment as a Factor of Production......Page 125 Keywords......Page 126 Introduction......Page 127 The context of the problem......Page 129 The individual or household's decision problem......Page 130 The firm's decision process......Page 132 Issues of scale, interactions, and complexities......Page 134 The environment affects the firm's production opportunities......Page 139 The single output firm......Page 140 The multiple output firm......Page 142 Using input demand functions......Page 144 Valuing changes in output using a damage function......Page 146 Valuing actual changes in output......Page 149 Further complications......Page 151 Price changes and multiple markets......Page 152 Instability and uncertainty......Page 153 Market distortions......Page 154 Environmental inputs and open access resources: the case of the fishery......Page 155 Environmental influences on forestry productivity......Page 159 Separable production and consumption......Page 161 When production and utility maximization are nonseparable......Page 162 Can the demand for the household produced good be estimated?......Page 165 Averting behavior by the household......Page 166 Conclusions......Page 169 References......Page 170 Recreation Demand Models......Page 174 Keywords......Page 175 Introduction......Page 176 Recreation and consumer expenditures......Page 177 Preferences for recreation......Page 179 Policy impacts......Page 184 Modeling preferences......Page 186 An ``ideal'' implementation of the basic model......Page 194 Single equation and demand system travel cost models......Page 196 Random utility and related models......Page 199 Corner solution models......Page 215 Price index models......Page 218 Overall prognosis on the modeling strategies......Page 219 Recreation data......Page 220 Data collection as an economic process......Page 221 Combining revealed and stated preference data......Page 222 Linking site characteristics to behavioral data......Page 225 Measuring travel distances and costs......Page 227 Single site demand models......Page 228 Systems of recreation demand equations......Page 231 Random utility models......Page 234 Dynamic models......Page 237 Nonparametric methods and models......Page 239 Price versus quality changes......Page 242 Valuation measures with extensive margin choices and unobserved heterogeneity......Page 245 Research ahead......Page 248 References......Page 254 Property Value Models......Page 265 Keywords......Page 266 Introduction......Page 267 The theory of consumer behavior in markets for differentiated products......Page 268 Discrete choice models......Page 274 Localized externalities......Page 276 Nonlocalized externalities without moving......Page 277 Nonlocalized externalities with moving......Page 284 Estimating the hedonic price schedule......Page 285 Extent of the market......Page 286 Functional form......Page 287 Nonparametric and semiparametric estimation......Page 288 Measurement of the environmental variables......Page 291 Other specification issues......Page 292 Spatial econometric techniques......Page 293 Rental prices vs. asset prices......Page 296 Timing of environmental impacts......Page 297 Repeat sales......Page 298 Search costs and time on the market......Page 299 Identification......Page 300 Endogeneity......Page 302 Random utility models......Page 304 Random bidding models......Page 308 Locational equilibrium models......Page 310 Conclusions and directions for future research......Page 312 Appendix A......Page 313 References......Page 315 Contingent Valuation......Page 322 Abstract......Page 323 Keywords......Page 324 Introduction......Page 325 Antecedents and beginnings......Page 328 Early empirical development......Page 330 Health, transportation, and the allocation of public budgets......Page 334 The existence value revolution......Page 336 Developments from the mid-1970s through the late 1980s......Page 338 The Mitchell and Carson book......Page 340 Exxon Valdez......Page 341 Literature production......Page 342 Major issues......Page 344 Economic welfare measures......Page 345 From WTP to CV response......Page 348 Statistical model of CV responses......Page 352 Summary measures of welfare......Page 358 Existence value......Page 363 Combining CV and RP data to measure use versus nonuse value......Page 366 Contingent behavior......Page 367 Option value......Page 368 Elicitation formats for stated preference information......Page 370 Response probability models for alternative elicitation formats......Page 374 The issue of incentive compatibility......Page 376 Some general results on incentives......Page 377 A typology of the incentive structure of elicitation formats......Page 382 Promoting incentive compatibility......Page 384 Structure of WTP distributions......Page 385 Issues in fitting binary discrete choice models......Page 388 Bid design......Page 390 Treatment of don't knows and protest zeros......Page 391 Treatment of respondent uncertainty......Page 392 Continuous response CV data......Page 394 Choice experiments......Page 395 Survey design......Page 398 Defining the population of interest......Page 402 Survey mode......Page 403 Sampling approaches......Page 404 Nonresponse......Page 405 Sample size......Page 406 Neoclassical theory and contingent valuation......Page 407 WTP versus WTA......Page 408 Income elasticity of WTP......Page 409 Sequencing, nesting, scope insensitivity and the adding-up test......Page 411 Consistency of CV results with actual behavior......Page 415 Concluding remarks......Page 419 References......Page 421 Cognitive Processes in Stated Preference Methods......Page 438 Keywords......Page 439 Overview......Page 440 History......Page 441 Design framework......Page 442 Evaluative extensions......Page 444 Decision theory stream......Page 446 Confluence......Page 449 Psychophysics stream......Page 450 Decision theory stream......Page 453 A cognitive approach to eliciting stated preferences for environmental outcomes......Page 457 Contingent valuation: a postscript......Page 464 References......Page 465 Experimental Methods and Valuation......Page 470 Keywords......Page 471 Introduction......Page 472 The experimental method and mindset......Page 473 Methods to establish rational valuation......Page 481 The divergence between WTP and WTA......Page 482 Preference reversals......Page 486 Synopsis on rational valuation......Page 492 Methods to measure values......Page 494 Experiments valuing public goods......Page 495 Experiments valuing private risks......Page 498 Does the unique lab environment inflate values?......Page 499 How does external information affect bidding behavior?......Page 500 How do lab choices compare to retail market behavior?......Page 502 Does the risk reduction mechanism matter?......Page 503 Synopsis on direct valuation......Page 504 Hypothetical bias I: does it exist?......Page 506 Hypothetical bias II: calibration......Page 508 Framing effects I: surrogate bidding (scope/embedding)......Page 511 Framing II: incentive compatibility......Page 514 Synopsis on testbedding......Page 517 Concluding remarks......Page 519 References......Page 521 Quantifying and Valuing Environmental Health Risks......Page 529 Keywords......Page 530 Introduction......Page 531 Historical background and current regulatory guidelines in the U.S.......Page 532 Hazard identification......Page 534 Dose-response assessment......Page 537 Exposure assessment......Page 539 Risk assessment in other countries......Page 541 Conservative risk assessment practices......Page 545 Synthetic v. natural chemicals......Page 550 Actual v. perceived risk......Page 551 The value of a statistical life v. the human capital approach......Page 558 Valuing morbidity risks......Page 560 The hedonic wage model......Page 563 The empirical specification of the hedonic wage equation......Page 566 Accounting for the duration and quality of life......Page 568 Labor market evidence of risk tradeoffs......Page 570 Survey evidence of risk tradeoffs......Page 573 Risk tradeoffs in other countries......Page 576 Using housing market data to estimate the value of a statistical cancer case......Page 579 Regulatory performance......Page 581 Legislative mandates, judicial review, and executive oversight in the U.S.......Page 588 Risk-risk analysis......Page 590 Moral hazard and forgone health benefits......Page 591 The opportunity costs of risk-reduction regulations......Page 592 Conclusion......Page 596 References......Page 597 15.pdf......Page 604 16.pdf......Page 625 The Handbook of Environmental Economics focuses on the economics of environmental externalities and environmental public goods. Volume I examines environmental degradation and policy responses from a microeconomic, institutional standpoint. Its perspective is dynamic, including a consideration of the dynamics of natural systems, and global, with attention paid to issues in both rich and poor nations. In addition to chapters on well-established topics such as the theory and practice of pollution regulation, it includes chapters on new areas of environmental economics research related to common property management regimes; population and poverty; mechanism design; political economy of regulation; experimental evaluations of policy instruments; and technological change