Acceptable logotype

ECO 3620. Environmental Economics

Valuing the Environment

Welfare Economics

  1. Consumer surplus = marginal benefit - price
  2. Producer surplus = price - marginal cost
  3. Welfare = consumer surplus + producer surplus
  4. Market failure and welfare economics

Value of Nonmarket Environmental Goods

  1. Direct Use Value - consumptive and nonconsumptive use
  2. Indirect Use Value (ie., nonuse value, passive use value)
  3. Total Value = use value + indirect use value

Revealed Preference Approaches

  1. Hedonic wage and price method
  2. Travel cost method (site choice and intensity) (an example)
  3. Averting behavior method

Stated Preference Approaches

  1. Contingent valuation method
  2. Contingent behavior method
  3. Conjoint analysis

Combined approaches

  1. Revealed preference approaches rely on actual behavior but misses policy beyond historical experience and indirect use value
  2. Stated preference approaches are flexible but rely on hypothetical behavior which leads to hypothetical bias
  3. Combined approaches may solve both problems