Env. Econ.
"I do not like living close to the airport because it is too noisy"
Hedonic
"I want to live in a city with clean air"
Hedonic valuation
For economists, the environment
Is an asset that can suffer depreciation
"I want to live in a city with clean air because I do not want to get sick from air pollution"
Use value
College-age athletes who drop out of college to play professional sports
are well aware that their opportunity cost of attending college is very high.
Why do we want to know the benefits of an environmental amenity?
because it tells us the demand for the environmental amenity
"I will never go to Hell Canyon in Arizona but I still care that is conserved properly for future generations."
contingent valuation Bequest
"I think is important to save Pandas from extinction because their presence on earth is valuable on itself"
contingent valuation existence
Positive statement
descriptive, making a claim about how the world is. When the minimum wage is increased, unemployment is a predictable consequence. "Prices rise when the quantity of money rises rapidly"
respondents may include other things in their valuation
embedding bias
Refer to Figure 1. What would be the amount of non-polluted water that produces the highest net benefit?
equilibrium
Hedonic price technique
estimates the prices of the product's characteristics
endowment effect is the concept that people tend to place
high value on something after they already possess it, relative to its value before they possess it.
questions about hypothetical questions have hypothetical answers
hypothetical bias
After years of research it was found that Washington D.C. the elasticity of house value with respect to the pollution level of oxidants and particulates is -0.6. This means that an
increase of concentrations of oxidants and particulates of 1% produces a decrease in housing values of 0.6%
respondents may not have enough information to respond accurately
information bias
Normative conclusions
involve value judgments.
normative statement
is objective fairness or what the outcome of the economy or goals of public policy ought to be "The federal government's responses to the most recent recession were insufficient." "Ensuring that Social Security is financially sound for future generations is an important use of taxpayer dollars" "Tax rates should decrease to benefit the nation."
A rational decision maker takes an action only if the
marginal benefit is greater than the marginal cost. the marginal benefit of the action exceeds the marginal cost of the action.
The equimarginal principle says that
net benefits are maximized when marginal benefits equal marginal costs
What you give up to obtain an item is called your
opportunity cost
If we want to maximize the net benefits of electricity production then we have to
produce to the point where the extra benefit of one more unit of electricity is equal to the cost of that additional unit.
The hedonic valuation technique
relies on the theory that goods are valued for their attributes (characteristics) air pollution in Conroe, Texas
Suppose the cost of operating a 100 room hotel for a night is $10,000 and there are 5 empty rooms for tonight. If the marginal cost of operating one room for one night is $30 and a customer is willing to pay $60 for the night, the hotel manager should
rent the room because the marginal benefit exceeds the marginal cost.
Suppose the cost of flying a 200-seat plane for an airline is $100,000 and there are 10 empty seats on a flight. If the marginal cost of flying a passenger is $200 and a standby passenger is willing to pay $300, the airline should
sell the ticket because the marginal benefit exceeds the marginal cost.
people may give different answers depending on how the question is asked
starting point bias
A rational decision maker
takes an action only if the marginal benefit of that action exceeds the marginal cost of that action.
Olivia was accepted by Northwestern and by another university. She is trying to decide where to go. Which of the following should influence her decision?
the difference between living expenses at Northwestern and her second choice, but not how much she spent applying to Northwestern
Use value
the valuation of an environmental amenity when the consumer enjoys it directly. Examples: A person enjoys clean air because they want to breathe clean air.
"I enjoy going to Galveston and swim in a clean beach"
travel cost method
"I enjoy swimming in a clean beach"
use value
Travel Cost Method
used to obtain how much people value an environmental site (e.g. park, beach) by computing the travel costs to the environmental site. visit the beach in Galveston, Texas
Contingent Valuation Method
uses surveys to determine how much people are willing to pay to protect or restore a resource "how much are you willing to pay per month to preserve the spotted owl's habitat?
defensive measures valuation
uses the market value of the purchases or other actions that the consumer makes in order to avoid exposure to environmental harm to estimate the value of the environmental amenity. water pollution in Huntsville, Texas Installing an air purifier or a water filtration system is an example of a(n)
altruistic (non-use value)
value from other people enjoying the environmental amenity. • People want to preserve a park because other people get to use it
bequest (non-use value)
value from your descendants enjoying the good in the future. People want to preserve a park they want their descendants to enjoy it • People want to preserve endangered species so that they still alive for their descendants
existence (non-use) value
value just because the environmental amenity just exist. • People may value the Grand Canyon just because it exists or animals just because they exist.
In economics, the cost of something is
what you give up to get it
