(28-2) Environmental Economics: Measuring Benefits and Nonmarket Valuation

Comprehensive vocabulary flashcards covering stated preferences, revealed preferences, behavioral anomalies, and nonmarket valuation methodologies from Module 3.

Contingent Valuation (CV)

A stated-preference method that directly asks individuals to state their monetary evaluations for changes in ecosystem services in order to derive consumer surplus without a market demand curve.

Willingness-to-Pay (WTP)

The maximum amount of money an individual states they would pay to obtain an improvement in ecosystem services.

Willingness-to-Accept (WTA)

The minimum monetary compensation an individual states they would accept to tolerate a degradation of ecosystem services.

Stated-WTA vs. Stated-WTP Disparity

The empirical observation that stated-WTA values are typically $2$ to $7$ times as high as stated-WTP values, commonly explained by prospect theory or a lack of close substitutes between environmental and market goods.

Prospect Theory

A behavioral economic framework introduced by Kahneman and Tversky (1979) establishing that individuals evaluate outcomes relative to status quo reference points rather than final expected utility, exhibiting greater sensitivity to losses than to equal-sized gains.

Free-Riding

A source of error in contingent valuation where respondents understate their true willingness-to-pay under the expectation that others will pay to provide the public good.

Strategic Bias

A form of survey error in contingent valuation occurring when respondents intentionally misreport their true valuations in order to influence a specific policy, legal, or funding outcome.

Framing Bias

A source of error in contingent valuation where the context, structure, or wording of the valuation question systematically alters the respondent's stated value.

Contingent Choice (Choice Experiments)

A modern stated-preference valuation method presenting respondents with a series of hypothetical binary choices to infer valuations of specific environmental attributes using statistical models.

Consumer Surplus

The difference between what individuals are willing to pay for an environmental service or project and what they actually pay, representing net social benefit when summed across all people minus provision costs.

Travel Cost Method

A revealed-preference method that infers the economic value of an environmental amenity (such as a park, river, or beach) by relating differences in travel expenditures to differences in visit rates to derive a demand curve.

Property Value Method

A revealed-preference approach that values environmental amenities or disamenities by examining changes in home transaction prices before and after environmental changes (such as toxic contamination) become public, holding other property attributes constant.

Wage-Risk Method

A revealed-preference method that estimates the implicit value of human life by isolating the wage premium paid to workers who voluntarily accept jobs with higher on-the-job mortality risks.

Value of a Statistical Life (VSL)

The aggregate dollar value derived from the trade-offs people make between money and small mortality risks, such as observing $10{,}000$ workers each accepting an extra $\frac{1}{10{,}000}$ annual death risk for $\\text{\$}500$, implicitly trading one life for $\\text{\$}5\text{ million}$.

Future Lifetime Earnings Approach

An older method for valuing human life—still utilized in some legal settlements—that equates the value of a life to expected future market earnings, implying that a retired or disabled individual is worth $\\text{\$}0$.

Engineering Approach (Replacement Cost)

An evaluation method that estimates the value of an ecosystem service by calculating the cost of a human-engineered substitute (e.g., commercial pollination) or the costs of adapting to damage and complying with regulations.

Life Satisfaction Approach

A nonmarket valuation technique that directly measures experienced human subjective well-being rather than economic production, translating impacts into monetary equivalents by comparing well-being coefficients.