The Economic Valuation of Environmental Amenities and Disamenities

25 Pages·2010·0.26 MB·English

ANRV390-EG34-14 ARI 14September2009 15:44
The Economic Valuation
of Environmental Amenities
and Disamenities: Methods
g
ory.
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sourc. 2ERLIN AFinrnstup.uRbelvi.shEendvoirnolnin.eRaessoauRr.e2v0ie0w9.i3n4A:3d2v5a–n4c7eon KbeenyefiWtvoarludastion,environmentalgoods,environmentalservices,
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nviroversit TishoenlAinnenuataleRnvevirioewn.oafnEnnuvailrreonvmiewenst.oarngdResources Abstract
v. EUni Thisarticle’sdoi: Therehavebeensignificantimprovementsoverthepastfourdecadesin
u. ReYale 10.1146/annurev-environ-011509-135201 ourabilitytoestimatetheeconomicvalueofenvironmentalamenities
Annby Copyright(cid:2)c 2009byAnnualReviews. anddisamenities.Thedevelopmentofmanynewtechniqueshasbroad-
Allrightsreserved enedwhatcanbemeasuredtoincludeclimatechangeimpacts,damages
1543-5938/09/1121-0325$20.00 fromhazardouswastesitesandairpollutionemissions,andthevalue
ofmanyecosystemservices.Wereviewthemajoreconomicvaluation
techniques,aswellasnumerousapplicationsofthesevaluationmeth-
ods.However,thereremainchallengesahead.Theinterfacebetween
economicsandthenaturalandphysicalsciencesmustbestrengthened.
Additional well-controlled “natural experiments” are always needed.
TheapplicationofvaluationmethodsoutsideoftheUnitedStatesre-
mainsamonumentaltask.Reliablemeasuresofnonusevaluesremain
elusive.
325
ANRV390-EG34-14 ARI 14September2009 15:44
toconsumers.Pricesarereadilyobservedand
Contents constantlyupdated.
In order to value larger changes in market
1.INTRODUCTION................ 326
goods,weusethedemandandsupplyfunction
2.METHODSFORVALUING
foreachgood.Thedemandfunctionisthere-
THEENVIRONMENT.......... 329
lationshipbetweenthequantityofagoodde-
2.1.RevealedPreferenceMethods.. 329
siredbytheconsumeranditsprice.Thesupply
2.2.StatedPreferenceMethods:
functionistherelationshipbetweenthequan-
ContingentValuation........... 332
tity of a good firms will provide and its price.
3.APPLICATIONSOF
Thetotalvalueofthegoodisthenetconsumer
ENVIRONMENTAL
and producer surplus, the difference between
VALUATIONMETHODS........ 334
g theareaunderneaththedemandfunctionand
ory. 3.1.ValuingPollutionEmissions
s.nl above supply function up to the amount con-
wo andAbatement................. 334
arjournals.annualrevie7/10. For personal use 4.C3O.2N.ASVemCravelLuincUiientsSigeI.sNO.a.aNn.t.du..rE..a..cl..oR..s..ey..ss..ot..eu..mr..c..e.............. 334307 swsAnitueosirmelntvllioifenbcndgeecm.nhvaeIaanatsrnlsgdguiisetenwosdathhlpwaaecatithytdhtaihitfnfoelfgcareeorrpgeesriatennisccchecaeshombuabcennieaecigtrttawkeyuoseestfeteionngatohmpgtoehoeadeookppdcersalitenociaster--.’
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wnloaRAR 1.INTRODUCTION thatarenottradedinmarkets,othereconomic
oB Environmental and natural resource econo- techniques, theoretically consistent with mar-
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7. Y mistshavedevelopedmethodstoestimatethe ket prices, or demand and supply functions,
5-34STR benefitsofpreservingenvironmentalgoodsand must be used instead. These nonmarket tech-
32MI services (and, conversely, the damages when niquesaretheprimaryfocusofthisarticle.
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nviroversit ofefrsutochacshomicaexsimtoizsioncgiestyo—ciawlhwaetlefcaoren.oAmipstoslricey- vgaelrueed.sMpeacnieys,paenodplbeiovdailvueersoiptyenansdpahcaev,eesnhdoawnn-
v. EUni that maximizes social welfare is economically through their memberships in environmental
u. ReYale efficient,andmosteconomistsconsidermove- advocacygroups,votesinlocalreferenda,and
Annby ments toward efficiency, measured through donationsthattheyarewillingtosacrificemuch
benefit-costanalysis,acriticalcriterioninen- forthesecauses.However,thevalueofanen-
vironmentalpolicydesign. vironmentalamenityremainswhatpeopleare
Theeconomicbenefitprovidedbyanenvi- willingtosacrificeforthatamenity.
ronmental good or service is the sum of what Economic value has use and nonuse com-
allmembersofsocietywouldbewillingtopay ponents. Use values involve an observable in-
forit.Forresourcestradedinmarketssuchas teractionbetweentheindividualandtheenvi-
oil,land,timber,andcrops,thevalueofsmall ronment, including consumptive uses, such as
quantitiesofmarketgoodscanbemeasuredby hunting,andnonconsumptiveuses,suchashik-
their observed price. In competitive markets, ing.Nonusevalueinvolvesnoactualinteraction
pricesreflectboththemarginalcostofproduc- betweenpeopleandtheenvironment.Forex-
ingthegoodtosuppliersandthemarginalvalue ample,peoplemayvaluesimplyknowingthat
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an endangered species (e.g., the panda bear) maykeepsomepeoplealive,butinanother,it
survivesorthatapristinearea(e.g.,theArctic maybeabundantandallocatedtolower-valued
National Wildlife Refuge) exists, even if they uses. Because water is hard to transport, the
neverplantoseeorusesuchresources(1).Op- marginalvalueofwaterdependsgreatlyonthe
tion value is a willingness to pay to have the setting. The cost of removing one dam may
choice of using a service in the future. Soci- behighbutanotherlow,dependingonavailable
ety may have some willingness to pay to pre- substitutesforwhatislostandwhatisgained.
serve a pristine wilderness area, a biodiversity Economicmethodsaredesignedtoestimatethe
hotspot,oranendangeredspecies,inanticipa- value of environmental services in specific lo-
tionofpossiblefutureuseofsuchresources.In cationsandcapturetheseimportantlocational
practice,however,optionvaluehasoftenbeen characteristics.
g confusedwithexpecteduseandhasledtothe Economicvaluesalsodependonwhoisvalu-
ory.
s.nl doublecountingofvalues. ingthem.Forgoodstradedinworldmarkets,
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wnloaRAR ralresourcepolicydecisionsaremarginal,and sourcesfightingthissinglerisk.Theymayplace
oB economic tools are appropriate for measuring alowervalueonairpollutionabatementthan
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7. Y such trade-offs. Economics is weaker at valu- peopleinrichercountries.
5-34STR ingall-or-nothingcomparisons,suchastheex- Economicsalsoplacesavalueontime.The
32MI istenceordisappearanceofwholeecosystems. choice to save or consume and the choice to
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v. EUni derestimateofinfinity”(3). thepresentslightlymorethanthefuturedoes
u. ReYale Themagnitudeofeconomicvaluedepends notimplyweshoulddestroytheplanetforim-
Annby criticallyonthescaleandcontextofthechange. mediategratification.Thereiseveryreasonto
For example, does a dam provide just a small expectthatrisingproductivitywillallowfuture
fractionoftheelectricityinaregionoralmost generationstobewealthierthancurrentones.
allofit?Canitbevaluedatmarketpricesoris Prudentdecisionmakerswillpreserveenviron-
itlargeenoughtochangeprices?Whatisthe mental resources for the future because they
valueoffishthatmaybelostbyadam?Willthe willhavegreatvalueinthefuture.
changeaffectonlyasmallpartofthefishpop- Economics depends upon understanding
ulationorwilliteliminateallremainingmem- whattrade-offsareactuallybeingmadeinpol-
bers? The value of species habitat rises as the icy. In practice, however, the exact trade-offs
amountofavailablehabitatfalls,andthevalue are rarely known with precision. What role
ofriversassourcesofelectricityrisesaselectric- doesuncertaintyplay?Formanysmalldecisions
itybecomesscarce.Irrigationwaterinoneplace withindependentrisks,economistsmeasurethe
www.annualreviews.org • EconomicValuation 327
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expected value of outcomes. Sometimes this Second, in the context of litigation, eco-
leads to an underestimate and sometimes an nomic valuation methods are recognized as
overestimate of actual value, but these many legal means of natural resource damage
smallerrorsbalanceoutinthelongrun.Forex- assessment (for the purpose of determining
ample,onemayregulatemanypollutantswith- compensation) by institutions, such as the
out knowing exactly the harmfulness of each Environmental Liability Directive of the
one.However,therearesomeuncertaintiesthat European Union, and U.S. laws, such as
have very large magnitudes. The effect of cli- the Clean Water Act (CWA); Comprehensive
mate change in the long run is a good exam- Environmental Response, Compensation, and
ple.Afteroneortwocenturiesofuncontrolled LiabilityAct(commonlycalledSuperfund);and
greenhouse gas emissions, the consequences theOilPollutionAct.Somecountrieshavebe-
g maybemanageableorunmanageable.Society guntheprocessofintegratingnaturalresources
ory.
s.nl maywanttovaluesuchrisksatmorethanthe andenvironmentalamenitiesintoestimatesof
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wnloaRAR environmental goods and services are “public nally,manyvaluationstudiesmaybeperformed
oB goods”; enjoyment of such goods by one per- to draw attention to the significant values of
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7. Y son does not interfere with the ability of oth- ecosystemserviceswhenthefailuretogenerate
5-34STR erstoenjoythem,andnoonecanbeexcluded suchestimatesoftenresultsinaneffectivevalue
32MI from consuming public goods, whether they ofzero.TheMilleniumEcosystemAssessment
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v. EUni notpayforthem,thereisatemptationtofree conservationists may benefit from knowing a
u. ReYale rideonothers’contributions.Somepeoplecare fish population is preserved. If net benefits
Annby moreaboutthegoodthanothers.Itistherefore rise from dam removal, the winners could
difficulttodeviseaschemetochargepeopleand compensate the losers. But such compensa-
difficultforpeopletoagreeonhowmuchofthe tionrarelytakesplace.Valuationprovidesvalu-
service to purchase. Governments must inter- able information about who gains and who
cedewithmanagement,regulation,andincen- loses from an environmental policy interven-
tivestoprovideandprotectpublicgoods.Gov- tion. Economics estimates the compensation
ernmentsmustknowhowvaluablethesegoods necessarytobringlosersbacktotheiroriginal
aretopeoplebecausescarcepublicdollarsmust levelofwell-being.Buteconomicanalysisstops
bespentontheirprotection.Insomecases,the short of normative recommendations about
lawactuallyrequiresbenefit-costanalysisofen- whoshouldwinorlosefromenvironmentaland
vironmentalpolicy.Valuationprovidesbenefit resource policies and whether compensation
estimatescriticaltothisprocess. shouldoccur.Compensationisapolicydecision
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328 Mendelsohn Olmstead
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thatremainsinthehandsofpoliticaldecision setting (7). Both approaches have strengths
makers. andweaknesses(8).
Inthisarticle,weprovideacarefulreviewof Stated preference, or attitudinal, methods
selectedliteratureonvaluationforanaudience ask consumers how much they value environ-
of noneconomists. The second section of this mental goods and services in carefully struc-
review describes the practice of valuing envi- turedsurveys.Theapproachhastheappealing
ronmentalbenefitsusingavarietyoftechniques virtuethatitcanbeusedtovalueanyenviron-
developed over the past four decades. We ex- mentalgoodorserviceaslongasthegoodcan
aminetheassumptionsandmethodsofasetof bedescribed.Becausetheapproachisnottied
valuation techniques, discussing the strengths tobehavior,itcanbeusedtovaluesomegoods
andweaknessesofeachapproach[additionalre- andservicesthatrevealedpreferencemethods
g viewsofvaluationcanbefoundinFreeman(4), cannotvalue.However,inpractice,thesurvey
ory.
s.nl Ma¨ler&Vincent(5),andBockstaeletal.(6)]. methodsaremoredifficultthantheyappear.
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arjournals.annualrevie7/10. For personal use IossinneofruStvSrheicecececesttsiemio;omnbanone4ta3t.hgh,eopwmdoeslelundtottisioacerunnesvpsciorosolevincleemirecesetdena.dntWadalpengpaocltooiucndracsatlliauorndnede-s rnisancesoigvemseEoncaicchcclioeeoodnssil,ccooeiipgmensrinseiagcstfgetseees,nrnpehhetnrsaasyacsvmlcee,hddaaoeakovplpeoeprngliorooniofspteatmeshscsd,haaiaroveaknensredaottblhsupe.binocsTidalapiuhstrioseetceobjasuwsloedescacricirocvaide---l
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wnloaRAR Two broad classes of methods can assess the allydomaydiffer.Thisraisesseveralproblems
oB economic value of environmental amenities withstatedpreferencemethods,discussedbe-
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7. Y anddisamenitiesintheabsenceofexplicitmar- low.Thus,economistsgenerallyrelyprimarily
5-34STR kets:behavioral(revealedpreference)methods onrevealedpreferenceapproachestoestimate
32MI and attitudinal (stated preference) methods. usevalueandreservestatedpreferencemethods
4:E
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nviroversit taintydoqfuagnotoitdys;ctahnebreelaetsitoinmsahtiepdbbeytwoebenserpvriincge 2.1.RevealedPreferenceMethods
v. EUni consumers’ choices in these situations. How- Manyenvironmentalgoodsareinputstopro-
u. ReYale ever, because the experiments are usually not ductionprocesses.Eveniftheseinputsarenot
Annby randomized, the methodologies must control readilytraded,theirvaluecanbecalculatedin-
undesired variation using a combination of directlythroughmarketanalysis.Forexample,
carefullychoosingexperimentsandcontrolling thevalueofnontimberforestproducts,suchas
for remaining problems with statistical tech- fruits,latex,andtropicalmedicinesinahectare
niques. Some revealed preference techniques of forestland, can be calculated by measuring
lean more heavily on structural statistical the net revenues from collecting these goods
models, and their attendant assumptions, to perhectare(9).Alternatively,thedamagefrom
estimatevalues.Othertechniques,oftencalled sealevelrisecanbemeasuredusingthemarket
quasi-experimentalmethods,leanmoreheavily valueoflandthatisinundatedplusthecostof
ontheassumptionthatpolicyinterventionsare constructingprotectiveseawalls(10).
truly exogenous and have created something Onecanalsomeasurethevalueofenviron-
closetoarandomizedexperimentinanatural mentalfactorsthatcausethedemandorsupply
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ofamarketgoodtoshift.Forexample,onecan using random utility maximization (RUM)
look at the impact of climate change on en- models (18). Within this framework, the con-
ergy by observing how climate shifts demand sumerchoosestherecreationalsite(ifany)that
RUM: randomutility
functionsforenergyresources(11).Similarly,a maximizes her utility, which is a function of
maximization
shiftinwatersupplycanbevaluedusingade- income, the prices of the chosen site as well
mandmodelofwaterconsumptioninawater- asthosenotchosen,andthecharacteristicsof
shed(12).Thechangeinnetconsumersurplus thesitechosenandthosenotchosen.There-
acrossallusersisthechangeinvalue. searcher has many specification decisions to
make regarding the definition of the limited
2.1.1.Travelcostmodels. Althoughaccessto choice set (i.e., which sites are appropriately
manyenvironmentalandresourceamenitiesre- consideredsubstitutes),thestructureofecono-
g quires an entrance fee, that fee is often small metricerrorterms,thetreatmentofunobserved
ory.
s.nl comparedtotheexpenseoftravelingtothese consumerheterogeneity(i.e.,preferences),and
wo
arjournals.annualrevie7/10. For personal use scatobhiotretiaiestogtwtsni.mneaieHrseni.ntsaheEttrrsoroxaadlpvwvd”elehololHeifctcniovoonasstpgtletueltaltoaoinhtnpideagloevnsesiimtstutrhiegatpaavg(ittaereieinloscxtnafpeirlmdlrooarmpietttlehlisascedttiphiitfo“eefptnerrvrmrsaiahecvrinieetip-st)l mooewcfniaodtenThneoyerloyfaomRvtatheUhipcelepMvrmlciafoeaoltduscrstaattvovtaamieroclsluton(ciadv1.otee9isol)tas.nnmSdamtorapdeetrietsohlatsliomichfidaoacslsndalggientivedvetrehahlnoteauprvrimemseesbeonteisno-tt
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wnloaRAR part,afunctionofthepricesofsubstitutesand there are some challenges to these methods.
oB complements;thisisalsotrueofenvironmen- Likeallstatisticalmodels,theyarevulnerableto
DLI
7. Y talgoodsandservices.Economistsrecognized thepossibilitythatimportantfactorshavebeen
5-34STR shortlyaftertheoriginaltravelcostmodelwas omitted, which could bias the results. Other
32MI developedthatconsiderationofsubstitutesites challengesstemfromthefactthatactualtravel
4:E
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ReST The economic value of recreation at a site butempiricalevidencesuggeststhatpeopleen-
n. y
nviroversit aelnsvoirdoenpmenendstaolnqusaitleitych(ea.rga.c,tewraistteircsq,uianlcitluydaitnga jsoeyartcrhaveerslinmgu(s2t2a)l,sosucgognessitdinegrhaolowwteorvvaalluuee.tiRmee-
v. EUni beach,airqualityatanationalparkwherescenic spentattherecreationalsite(23).
u. ReYale viewsarevalued,andtheaveragecatchbyan- Anotherimportantissueconcernsmultipur-
Annby glersinariver).Onecanusemultiplesitemod- pose trips. Some people travel just to visit a
elstovaluesitecharacteristicsiftheonlydiffer- single recreational site. For trips with multi-
ence between two sites is the characteristic in plepurposes,however,anindividualrecreation
question(16).However,inpractice,sitesdiffer siterepresentsonlyaportionofthetrip’svalue.
inmanycharacteristics. If the analyst drops multipurpose trips, it will
Discrete choice methods model the choice biasdownwardthesite’svalue.Assigningpro-
ofasitebyavisitorasafunctionofsitechar- portionalvaluestoeachdestinationorpurpose
acteristics(17).Peoplechoosedifferentsitesto is,unfortunately,arbitrary.
obtaindifferentpackagesofsitecharacteristics. Manyoftheassumptionsoftravelcostmod-
Onecanvaluesitecharacteristicsbyseeingwhat elscanbedealtwiththroughsensitivityanaly-
travelcostspeoplewouldpaytoobtaindiffer- sis. Researchers can make a range of assump-
ent packages. Such models can be estimated tionsabouttheopportunitycostoftime,which
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330 Mendelsohn Olmstead
ANRV390-EG34-14 ARI 14September2009 15:44
travel expenditures to include, and what por- canbeusedtoestimatethedemandforcharac-
tionofcostsforamultipurposetripshouldbe teristics(28).Severalauthorshaveattemptedto
attributedtoanindividualsite.Theycanthen estimate the demand for characteristics using
observe how the recreational value of a site data from a single market. Unfortunately, the
changeswiththesechangesinassumptions. variation in the observed prices in a single
marketisperfectlycorrelatedwiththevariation
2.1.2. Hedonic property models. Hedonic indemandshiftvariablesacrosspeople,sothe
models arise from the idea that the price of demand functions cannot be estimated (29,
a good is really a sum of the implicit prices 30). Some authors have sought to overcome
ofeachofitscharacteristics.Forexample,the this by segmenting housing markets within a
priceofacarcomprisestheimplicitpricesfor single city, but this approach requires strong
g characteristics including fuel efficiency, accel- assumptions(31).
ory.
s.nl eration,passengerseating,andaestheticappeal. The unobserved characteristics of housing
wo
arjournals.annualrevie7/10. For personal use Sevbfinoraeimgaolrultieangolg:arefreo(ilga;buy)h,ap(btpbtshho)horeryofchspohciocrhmaoiaracdlsare,casattcoerentf.uergdairc.si,tthsbuittocerihscdemes,reootsqhfuoduacmetathhplsdieetaenyastndsetoudrshfmreorsponiqnnuuuusebneamlidvritec---s cbeusitponoryaan,vrtlhislirueaoeolamoxlndypdmeiesnrcresgooincmrnttaraoeuetlnhlsaqbetetsuiepa,badselaueoistdnwpiysoliee(tbo3hsstft2oeiem–trhsn3veaeev4ltidif)err-.sospA.fonarsFrmcetwtofoeeirnirnrtetshetonaxaclcanlaemleqnsinupgfaablhotele--r-,
ded from Y on 01/1 snacsehtawoiorolrask,nsdp;arwonxdait(mecr)ietqynuvtaiorliotjynombosrenapntradolxatimrmaenintsyiptioteorst,aostpuioecnhn hijonibgushr,ebriannletvauerrlensa,socftahanairtipanlocsrloleuahtsiaeovnehommuoasyrinebgjeovboasbl.usMeersvo.erIdef
wnloaRAR space.Hedonicpropertymodelscollectdataon onefailstoadequatelycontrolforsuchfactors,
oB thepricesofhomesalesandhousingcharacter- onemayover-orunderestimatethepriceofair
DLI
7. Y istics,likethoselistedabove,andthenestimate pollution.
5-34STR themarginalimplicitpricesofthecharacteris- Anotherapplicationofthehedonicproperty
32MI ticsofinterest.Thiscapturesthemarginalvalue approachistheRicardianmodelofagricultural
4:E
009.3G CH othfeanamenevniirtoyn’smcuernrteanltamleveenlitoyftporhoovimsieoonw.Hneerdsoa-t loatnhde.rRceognrterosslinvagrfiaarbmlelsa,ntdhivsaalupeproonacchlimcaanteeasntid-
ourc. 2RLIN nthicemecoodneolmshicavvealbueeeonfuasierdquparilmityar(2il4y,t2o5e)s.tOimthaeter musaintegtbhoethimcpraocsts-osfecctliiomnaatle(o35n)faanrmdlpanandevladluatea,
sE
ReST environmental applications include proximity (36).
n. y
nviroversit tsoucwheatslahnadzsaradnodusowpeanstespsaitceesaannddadiirspaomrtenniotiisees 2.1.3.Hedonicwagemodels. Hedonicwage
v. EUni (26). models share a similar theoretical basis with
u. ReYale Thoughvaluableinmanysettings,hedonic hedonic property models. In environmental
Annby propertymodelshavelimitations(27).First,the economics, these models are used primarily
researchermustassumethatbuyersandsellers to value mortality risk. Jobs are collections
have good information on the characteristics of characteristics: training, education, fringe
of all housing alternatives. Thus, the models benefits,prestige,andworkingconditions,in-
areappropriateonlyforestimatingthevalueof cluding the risks of accidental death or injury
observable or known amenities and disameni- (37,38).Regressingwagesonjobcharacteris-
ties.Second,themodelsassumethatpeopleare tics(controllingforworkercharacteristics)re-
mobileenoughthatcurrentpricesreflecttheir vealstheirmarginalimplicitvalue.Forexample,
preferences. the coefficient on the risk of a fatal accident
Althoughthehedonicmethodsreadilyesti- reveals how much additional compensation a
matethemarginalvalueofsitecharacteristics, person requires to assume an additional small
it has also been suggested that the technique risk.
www.annualreviews.org • EconomicValuation 331
ANRV390-EG34-14 ARI 14September2009 15:44
Theseestimatedvaluesofsmallriskreduc- whetheraheartattackonthejobwasactually
tions have been translated into the value of a causedbythejob.
statisticallife(VSL).Forexample,imaginethat Thereisevidencethatthemarginalvalueof
VSL: valueofa
10,000peopleareemployedinariskyoccupa- riskmayvarywithage(43,44),acrosscountries
statisticallife
tion, each faces a 1/10,000 risk of death, and (45,46),andwiththecharacteroftherisk,such
each is willing to pay $500 to eliminate this aslatency(47).Forexample,peoplemayvalue
risk.Thetotalwillingnesstopayforriskreduc- the risk of cancer differently from the risk of
tionwouldbe$5million,whichwouldprevent a sudden car accident. The hedonic wage lit-
one statistical death, so this is the VSL. This erature tends to measure the value of reduc-
techniquedoesnotestimatethecompensation ingaccidentaldeathsandnotdeathsassociated
required for certain death or illness; it simply with long-term chronic exposure to environ-
g providesameasureoftherateatwhichworkers mental contamination, but long-term chronic
ory.
s.nl are willing to trade fatal and nonfatal risk for risksdominatetheriskofaccidentaldeathson
wo
arjournals.annualrevie7/10. For personal use meatahrrroeeaetVnhauseieersstvedecaeourroriynsnoaiilcuvc&osacpmlhcAuraoopillndnpelegycnenersr(grt3aiysnet9ki.sm)osFrnttoeooo.dvrlietieehflwesxi,saaotmnhamdpepiphletertec,oeaosdalnotcvhomha.m.reTiAiapchbseelliorietne--s tbfralirhisatsoseekkomrejscaorwitlbsauoi.ttrnfeMhergdol-iiomsntwenelriigrtwmmshdhmieetiplextaaoedpyylosldlbusuaiyutencirtoftgeurhnoated.omlilnUsypeebarnaalerasrftsecoieac,krmbutlauslubnaennltdneaegctstefedh.aliTeyros,merfhaiterseshkesreee-ss,
ded from Y on 01/1 pwcoloenrskaereqerusi’enncstoulmryewpdeiblnlysraeetciiotehnive.erTaphrpeiavyya,tmeoerinnttshuienriarcnahcseeeiroosrf, loicacbulepaetsitoimn.atesoflong-termmortalityrisksby
wnloaRAR their death or an accident. If this payment is 2.1.4. Averting behavior models. If people
oB notincluded,thehedonicwageapproachcould incur private expenditures to avoid the dam-
DLI
7. Y underestimate the value of risk (40). Omitted agesfrompollutionorotherenvironmentaldis-
5-34STR variables that are correlated with both wages amenities,thesumoftheseincurredcostsisat
32MI andrisk(suchasunobservedcharacteristicsof leastapartialestimateofthevalueofthesedam-
4:E
009.3G CH tohreowftohrekejor,b,ee.g.g.,.,epahseysoicfawloexrekrtuinodne)rarperepsasrutirce-, acgoestss.”Ionre“caovneortminigcetexrpmens,ditthuersees.a”rFeo“raveoxaidmapnlcee,
ourc. 2RLIN uvolalrvleycporrorebllaetmedatriics.ksInofaddidffietrioennt,tmypaensyojfoibnsjuirny-, imfaaygrsouubnstditwuatteebrosottulercdewisacteorn.tOamneincaatnedc,opnesoidpeler
sE
ReST aswellasfatality.Attemptstovaluesmallrisk the medical costs a person incurs to treat any
n. y
nviroversit rceodnutrcotiloanpspfroorperiaacthelyoffothrecsheaoncgceusrirnentcheesomthuesrt iwllanye.sAsvcearutsinedgbexyppeonldluittuiorneseaxnpdos“ucroestinofaislilmneislas”r
v. EUni risks,orestimateswillbebiased.The“sorting” measures, however, are at best a lower bound
u. ReYale effectsthathavebeguntobeaddressedinthe onthevalueofdamagesfrompollutionbecause
Annby hedonichousingmodelsarealsorelevanttohe- theydonotcapturethepainandsufferingthat
donicwagemodels(41). cannotbeavoided(48).
The hedonic wage approach can only esti-
matethevalueofchangesinrisksthatworkers
2.2.StatedPreferenceMethods:
perceiveaccurately.Theprobabilityofinjuryor
ContingentValuation
deathonthejobmaynotbeaccurate.Forex-
ample,peoplemightthinkthatbeingapolice Attitudinalmethodsusecarefullydesignedsur-
officerorfirefighterisdangerous,butstatistics veysthataskconsumershowmuchtheyvalue
showthesejobsarequitesafe(42).Researchers environmentalgoodsandservices.Thesurvey
themselves may have trouble measuring mor- creates a hypothetical market for the amenity
tality rates. For example, it may not be clear sothatresponsescanbeevaluatedinamanner
·
332 Mendelsohn Olmstead
ANRV390-EG34-14 ARI 14September2009 15:44
similar to behavior observed in markets. The example,thevaluationofresponsestotheloss
basic architecture of a contingent valuation of2,000,20,000,and200,000migratorywater-
(CV)surveyis(a)adescriptionoftheservice/ fowlintheCentralFlywaywasessentiallythe
CV: contingent
amenity to be valued and the conditions un- same (55). In other cases, analysts have noted
valuation
derwhichthepolicychangeisbeingsuggested, appropriatesensitivitytoscope(56,57).Itmay
(b)asetofchoicequestionsthatasktherespon- bethatsuchresults,inconsistentwitheconomic
dent to place a value on the service/amenity, theory,aredirectlyattributabletosurveydesign
and(c)asetofquestionsassessingthesocioe- problemsandcanbeavoidedinpractice(58).
conomiccharacteristicsoftherespondentthat CVsurveyrespondentsmayalsobeswayed
willhelpindeterminingwhatfactorsmayshift byhowaquestionisframed(52,59).Forexam-
thatvalue(49). ple,onecandescribetheimpactofanoilspill
g Stated preference methods can be used to onlocalfishermeninpurelyscientifictermsby
ory.
s.nl valueanyenvironmentalgoodorservice,even measuringthefishlost.Oronecouldchooseto
wo
arjournals.annualrevie7/10. For personal use aiwelpsatrothreellgineincecvchcyseeetlc,.scammoTonnefnohttqosheetutyxoabtidmslcesi,at.pmynsoNuterahcatolhaassnuotnurtaaescrsesdaeopeuccvtnusiauaidrlrnluraegeenvnsangrlteeoulmvryneeeausnadysloieentsdbpviesnpeaorcltmeueihexefee--s, aiodtwnhlpeasdanmostuctdescehtnroreeutnyfncvwftaokeoap,ryostttak.tphihAnateeorlototamefiovrltfanohcnaaieodytvnmivaepaepstsrsliapeyoenci,lnlyalotauhanlwtaneeitaodnsccnetaomshruugatsalythedkdoaiimnntitldghtedheenhepestvuepieoognilline--ll
ded from Y on 01/1 abcnlautddeewodivliednreerwcnohensesothmperircessaeunrcavhlaytsiveoasnlu(.5eE0s,cs5oh1no)ou.mlWdisebtsfeodcinue--s ptdariifolfsefigrtesr,neaatntvldyaltiuhneeflsufi.esnhceermreesnpownesreesp,loeoard.iTnghetosevderey-
wnloaRAR hereondescribingstatedpreferencemethods, Respondents may also be affected by how
oB rather than examining the validity of nonuse they are asked to pay for the environmen-
DLI
7. Y value in economic theory. Nonetheless, there tal good. For example, many respondents
5-34STR isanimportantparadox;someofsociety’smost care whether the payment comes in the form
32MI importantvaluesfornaturalresourceamenities of taxes, fees, or contributions. Respondents
4:E
009.3G CH mleaasytcboenpfirdeecnisceelyinthmeeavsauluriensgt.hat we have the soobmjeecttimtoetsheprpoatyemstetnhtemqeuthesotdio.nThbeeycamusaeypthreoy-
ourc. 2RLIN plyIanskeaerdlypaetotpitluedhinoawlsmuruvcehyst,hreeysewarecrheewrsilsliimng- vtuidaelly“phraovteessotmzeeropso,s”iteivveenvathluoeufgohrtthheeygomoady.Aacl--
sE
ReST topayforeachamenity;thishasbecomeknown thoughsomestudiessimplydropobservations
n. y
nviroversit aesvearn,“soupcheno-penend-eedn”dqeudesvtailounatdioesnigqnu(e5s2ti)o.nHsoawre- tithiastbreetstpeorntodcpoonotrrloyltfoorpprreolitmesitnoarrsybquutessttililoinns-,
v. EUni limited in their ability to provide accurate re- cludethemaspartofthesample(60).
u. ReYale sults.Close-endeddiscretechoicequestions,in A final problem with attitudinal surveys
Annby whichrespondentsoffera“yesorno”response is that the responses to willingness-to-accept
whenofferedoneormorespecifiedpricesfor (WTA) questions have generally been many
anenvironmentalgoodorservice,havelargely timesgreaterthantheresponsestowillingness-
replacedopen-endedquestionsinCVstudies. to-pay(WTP)questions(61).Thisisespecially
Thisnewerformatrequireshouseholdstoexer- truefornonusevalues(62).Theselargediffer-
cisethekindofjudgmentmorefamiliartothem encesaredifficulttojustify,suggestingtheyare
fromtypicalpurchases(53). measurementproblems.
CVsurveyrespondentsmaylackmarketex- AReportoftheNOAAPanelonContingent
periencewiththeenvironmentalgoodandnot Valuationdevelopedasetofguidelinestosug-
understand how to value it (54). Respondents gestbestpracticesforCVsurveys(63).Tohelp
sometimesexpressthesamevalueforenviron- respondents understand the good, the report
mentalgoodsofverydifferentmagnitudes.For suggestedanextensiveunbiaseddescriptionof
www.annualreviews.org • EconomicValuation 333
ANRV390-EG34-14 ARI 14September2009 15:44
thegood.Italsorecommendstheuseofclose- modelstocaptureemissions,dispersion,expo-
endedquestionsandtheuseofWTPquestions sure,physicalresponse,andvaluationofthose
rather than WTA questions. In addition, ex- responses.Thus,onetaskfacingeconomistsis
perimental economics has contributed signif- tolinkwhatisknownabouttheeconomicsof
icantly to survey design in recent years (64, pollution (emissions and valuation of effects)
65). Well-designed CV surveys are, for now, towhatisknownaboutnaturalscience(atmo-
the only tools available for estimating nonuse sphericscience,atmosphericchemistry,hydrol-
value. They have also been used to estimate ogy,epidemiology,andtoxicology)inacoher-
sometypesofusevalue;forexample,theyhave ent model. Recent advances in these methods
beenusedinmortalityriskvaluation(inmany have made it possible to value not only large
casesobtainingestimatescomparabletothose changesinemissions(66,67)butalsomarginal
g fromhedonicwagestudies),aswellasinesti- damages(68).Ofcourse,thereremainsagreat
ory.
s.nl matingthevalueofimprovingpipedwaterser- deal of uncertainty in such modeling efforts.
wo
arjournals.annualrevie7/10. For personal use vc3EMii.ncNEeAesVTPcioInPHvRdeLOOreIavCDgNeelAoSMapTniEndIgONincNTocruASenaLtOsreiVedFsA.prLoUvisAioTnIOofNvac- Fs3hpco.aui1vlerl.etnu1hct.eeaesrnLtamitnmoso.dcaMrateele,codiosattnitiroshofcemptrhiviotcaeilscllbuuabeeltentaohemnffiatatstrdst.eheedMesuctlaciaimrinnnekayfgsuteblladloenyc.btaawyllyetsaeheiners
ded from Y on 01/1 TaphpeliemdettohoadwsirdeeviveawrieedtyinofSeenctviiornon2mheanvtealbaenend Ufmro.aSmn.Ehfeendavelitrrhaolnbamierneqenufitaatslli—tPyrrroeetdgeucuctlieaodtniomnAsogsreubngicdgyiet(ysEtPahnAud-)
wnloaRAR resource management problems. This section mortality—comprisethevastmajorityofben-
oB reviewsapplicationstolocalandglobalairpol- efits. The EPA uses a VSL estimate based on
DLI
7. Y lution, water pollution, solid and hazardous ananalysisof26differenteconomicestimates
5-34STR waste, and the use and management of natu- (5CVand21hedonicwagestudies),applyinga
32MI ralresources,includingwater,wetlands,forests, meanvalueofUS$(1999)6.2million,adjusted
4:E
009.3G CH species,andbiodiversity. fvoarluiensfltaotiaocnco(6u9n)t.fTorhelatEenPcAya(ltshoealadgjubstestwVeSeLn
ourc. 2RLIN 3.1.ValuingPollutionEmissions eoxvpeorstuimreea.nBdecoauutsceomofeesq)uanitdyfcoornicnecronms,ethgeroEwPtAh
ResSTE andAbatement isbarredbytheU.S.Congressfromadjusting
n. y
nviroversit NtiounmderaomuasgsetsudiniesthheavUenniotewdmSteaatseusr.edExpisotlilnug- VtimSLatebdytahgeee(c6o9n)o.mTihcevaliltueeraotufraevohiadsedalislolneess-s
v. EUni studies probably capture the majority of pol- (70,71).Alberini&Krupnick(72)summarize
u. ReYale lutiondamagesintheUnitedStates.Theonly thevaluationestimatesforavoidedillnessand
Annby obviousweaknessintheU.S.studiesisthatthe deaths used in four major models by regula-
studiesdonotcapturetheimpactsineverylo- toryagenciesintheUnitedStates,Canada,and
cation.Therearestillplaceswhereatleastsome Europe.
pollutionemissionsremainunstudied.Incon- Lead is a local air pollutant with very sig-
trast, the damages from pollution outside of nificant abatement benefits. In a 1985 report,
the United States have been analyzed in only the EPA quantified the main benefits of re-
a few contexts. Thus, one of the major tasks ducingleadingasoline:reducedhumanhealth
still facing valuation is to obtain values across damages from lead exposure (retardation of
theworld. children’scognitiveandphysiologicaldevelop-
Inordertomeasurethedamagesfrompol- mentandexacerbationofhighbloodpressurein
lutionemissions,emissionsmustbelinkedwith adultmales),reductioninotherlocalairpollu-
finalconsequences,usingintegratedassessment tantsfromvehicleemissions(becauseleadedgas
·
334 Mendelsohn Olmstead