Environmental Economics (Environ 235) Exam 2

Benefit Cost Analysis (BCA)

decision making framework in which all costs and benefits are measured and compared in monetary units

static efficiency

efficiency at a particular point in time

dynamic efficiency

maximizes the present value of net benefits across time

Present Value Equation

y=x/(1+r)^N

Risk Neutrality

indifference between a certain outcome with a given value and a set of risky outcomes with the same expected value

risk averse

Reluctant to take any kind of risk.

risk loving

refers to a person's willingness to take bets with negative expected values

precautionary principle

a principle based on the belief that action should be taken to decrease the probability of a catastrophic outcome of a policy

distributional effect

who is receiving benefits vs. who is receiving costs of a certain policy

tangible vs intangible benefits

Tangible Benefits: Can be quantified and measured easily.

Intangible Benefits: Results from an intuitive belief that the system provides

Cost Surveys

easy to lie, inflate cost necessary

Engineering costs

tends to miss specifics and understates actual costs

discount rate

"discounts" future to present value

risk-free rate of return

the rate of return on risk-free investments. The interest rates on short-term U.S. government bonds are commonly used to measure this rate

risk premium

the excess return required from an investment in a risky asset over that required from a risk-free investment

cost effective analysis

Compares alternative projects or plans to determine the least costly way to achieve desired goals. Usually, some index or point system is developed to measure the effectiveness of the proposal in meeting the goals and objectives.

impact analysis

report detailing all aspects of a proposed action without monetization or optimization to avoid bias

total economic value

is an approach to compare the benefits and costs associated with ecosystems

total economic cost

use + option + nonuse values

direct use value

value of engaging directly with amenity

indirect use value

ecosystem benefits that are not valued in markets, such as flood prevention and pollution absorption

option value

the worth of something we might use later

nonuse value

bequest + existence value

bequest value

future generations' possible use

existence value

the worth of knowing that something exists, even if we never experience it ourselves

endowment effect

the tendency of people to be unwilling to sell a good they already own even if they are offered a price that is greater than the price they would be willing to pay to buy the good if they didn't already own it

revealed valuation

uses existing market to obtain data on an good/service

direct revealed

uses market of good to understand how society values it

indirect revealed

uses travel costs, hedonic models and/or defensive expenditure to estimate value

Travel Cost Method

the value a person will spend on traveling to a location for an activity

Hedonic Model

property values and wage models

defensive expenditures

The amount of money people are willing to pay to protect themselves against pollution damages. Examples are expenditures on sunscreen, noise proofing, bottled water, and air purifiers.

direct stated preference methods

surveys directly asking WTP and WTA

strategic bias

respondents do not reveal true WTP to influence outcome

social desirability bias

the tendency for people to say what they believe is appropriate or acceptable

information bias

when too much or too little information is provided

starting point bias

respondents are influenced by the values listed in the survey

hypothetical bias

the possibility that people respond differently to hypothetical situations than to having to pay real money

interviewer bias

effects of interviewers on respondents that lead to biased answers

payment vehicle bias

They are influenced by the type of payment mentioned in the survey, such as taxes or donations

indirect stated methods

choice experiments and contingent ranking

choice experiments

presents alternative resource or use options, each of which are defined by various attributes including price

contingent ranking

a survey method in which respondents are asked to rank a list of alternatives

value transfer valuation

uses values developed at different time, location or context

benefit function transfer

uses models developed in other research

meta analysis

a procedure for statistically combining the results of many different research studies

Schaefer Growth Model

economic model assumptions

species price is constant, cost of effort is constant, harvest is positively correlated with efficiency and stock sizes, sustainable harvest

sole ownership

well defined property rights maintain incentive to harvest at efficient effort level

open access

undefined property rights incentives overexploitation

aquaculture

controlled raising and harvesting of marine species

concerns of aquaculture

not all species can be raised in aquaculture, fish feed is still wild-caught, invasive species, disease and pollution

Exclusive Economic Zone (EEZ)

the seazone extending 200 nautical miles from the coast over which a state has special rights as to the exploration and use of marine resources

Gear Restrictions and Fishing Seasons

artificially raise costs

taxes on effort/harvest

wealth transfer to governemt

Catch Share Programs

type of management system that dedicates a secure share of fish or fishing area, to individual fishermen, communities or fishery associations

ITQ (individual transferable quota)

A fishery management program in which individual fishers are given a total allowable catch of fish in a season that they can either catch or sell.

problems with ITQ

high grading and bycatch

high grading

selectively taking the best and leaving the rest.

marine protected areas

areas of ocean partially protected from human activities

marine reserves

an area of the ocean designated for no activities, beneficial when fishery is severely overexploited