EM1 reading notes

Exxon Valdez Oil Spill (1989): Tanker ran aground, leading to an oil spill of approx. 11 million gallons in Alaska.
- Responsible parties: Exxon Corporation acknowledged liability.
- Cleanup Costs: Estimated at $2.1 billion, with an additional $303 million paid to fishermen affected over five years.
- Court Settlements: Legal actions resulted in additional $900 million to be paid over ten years, followed by punitive damages that were initially awarded at $4.5 billion, later reduced to $2.5 billion.
Deepwater Horizon Spill (2010): Explosion caused significant environmental damage, releasing 134 million gallons of oil and increasing economic damages and cleanup costs to unprecedented levels.
- Resulted in a $20.8 billion settlement, with $8.8 billion dedicated to natural resource damages.

Valuation Challenges: Estimating damage from oil spills involves complex methodologies. Key considerations include:
- Cleanup Costs: Clear but only part of total damage.
- Ecological Impact: Difficult to quantify; concern for species like birds impacted by spills.
Nonmarket Valuation: The Exxon Valdez spill initiated efforts to monetize environmental damage, changing practices in environmental economics.

Economic Value Components:
- Use Value: Direct benefits derived from using the resource (e.g., harvesting fish).
- Option Value: Value placed on preserving the potential to use the resource in the future (e.g., preserving a national park).
- Nonuse (Passive Use) Value: Value derived from knowing a resource exists, including existence and bequest values.

Policy Implications: Assigning a value other than zero to environmental assets is crucial for policy decisions, as failing to do so leads to unjustifiable environmental degradation.
Calculation of Benefits: Federal agencies use benefit-cost analysis in resource management practices like:
- Damage assessments
- Habitat designations
- Licensing for environmental projects

Market-Based Approaches: Using observable behaviors and transactions. Examples include:
- Travel Cost Method: Infers value based on distances traveled for recreational purposes.
- Hedonic Pricing: Analyzes market data from property sales to deduce value based on property characteristics and environmental quality.

Contingent Valuation: Surveys gauge people's willingness to pay for environmental improvements.
- Issues include biases such as strategic bias and hypothetical bias, impacting reliability of responses.
Choice Experiments: Individuals choose between different bundles of resource attributes to reveal preferences.

Types of Biases in Surveys: Common biases include strategic bias, starting-point bias, hypothetical bias, payment vehicle bias, and differences between willingness to pay (WTP) versus willingness to accept (WTA).

Passive Use Values: A large survey estimated lost passive-use values resulting from the spill to be around $2.8 billion based on WTP to prevent future spills.

Nationwide survey valuing U.S. National Parks at a minimum of $92 billion, combining both use and passive values. Half of this value attributed to passive-use.