3- Evaluating the Environment

What are the three main types of environmental evaluation method?

cost-based methods, revealed preference methods and stated preference methods

what do cost based methods do

they estimate value using the cost to society of mitigating or remediating pollution damage

What do stated preference methods do?

They ask people directly about their willingness to pay for environmental changes.

What do revealed preference methods do?

They infer willingness to pay from people’s actual behaviour and choices

What assumption underlies revealed preference methods?

That people reveal the value they place on environmental factors through market choices involving items with different environmental characteristics

What are the two main revealed preference methods?

Hedonic pricing and travel cost

What is the hedonic pricing method?

A method that uses house prices or salaries plus their characteristics to infer willingness to pay for environmental benefits or willingness to accept risk.

How is a hedonic price function obtained?

By using multiple regression analysis on price data and characteristics

In a hedonic pricing model, how is willingness to pay for an incremental increase in characteristic qkq_kqk​ found?

From the derivative ∂p/∂qk=pck

What is the travel cost method?

A method that estimates the recreational value of a site using the cost of travelling to it as a proxy for the value of access.

In the travel cost method, what is the recreational value of a site?

Consumer surplus, assuming zero supply cost.

What is contingent valuation?

A stated preference method where people are surveyed directly about their willingness to pay for environmental quality or health outcomes

What are the main steps in contingent valuation?

Define the environmental characteristic, identify respondents, design and apply the survey, and analyse and aggregate responses.

What are the four types of value in stated preference methods?

Direct use value, option value, bequest value, and existence value.

What is direct use value?

Value from directly using an environmental good, such as cycling in a forest.

What is option value?

Value placed on the possibility of using an environmental asset in the future.

What is bequest value?

Value placed on preserving an environmental asset for future generations.

What is existence value?

Value placed on simply knowing that something exists, even without any intention of using it.

What hedonic pricing function form is used in the lecture example?

lnp=c0​+∑ck​qk​, where price depends on environmental and other characteristics.

What does a positive c3c_3c3​ coefficient for green space mean?

More green space is associated with higher house prices, so households have a positive willingness to pay for it.

Why are ecosystem services important in environmental evaluation?

They allow environmental value to be quantified and included in cost-benefit analysis.

What are the four main categories of ecosystem services?

Provisioning, regulating, habitat, and cultural services.

How are provisioning services usually evaluated?

Using direct market value methods.

How are cultural services often evaluated?

Using a combination of direct market value, revealed preference, and stated preference methods.

What is the avoided cost method?

A method that values an ecosystem service by the damage costs avoided because the service exists

What is the mitigation and restoration cost method?

A method that uses the cost of restoring an ecosystem service after it has been lost.

What is the replacement cost method?

A method that values an ecosystem service by the cost of replacing it with an alternative system

What major pollution categories are listed in the lecture?

Air, water, occupation, and soil

What is the value of a statistical life (VSL)?

The total amount many people would pay for small reductions in mortality risk that together save one statistical life.

What is DALY?

Disability-adjusted life year, a measure combining mortality and morbidity.

What is the DALY equation?

DALY=YLL+YLD

What does YLL stand for?

Years of life lost.

What does YLD stand for?

Years of healthy life lost due to disability

How can DALY be used to estimate the cost of pollution?

By using willingness to pay to eliminate a DALY, which is taken as the value of a life year (VLY)