2008_04_17_Notes

2008_04_17_Notes - UP FRONT Problem set 5 due next Thursday...

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UP FRONT, 4-17-08 Problem set 5 due next Thursday. Look for it by email. Look for next reading assignment by email. Outline for Today 1) Total economic value (including option, altruistic, and existence values) 2) Contingent valuation, part 1
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Think About These Related Statements A proper measure of recreation benefits would be to indicate how much managers would collect in the form of user charges Should we keep a National Park open if the expected revenues don’t exceed the expected costs? Disney vs. redwoods, round 2 Even full WTP not enough Economists to the rescue: existence and option values
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Existence Value “There are many persons who obtain satisfaction from the mere knowledge that part of the wilderness in North America remains even though they would be appalled by the prospect of being exposed to it.” - J. Krutilla, AER 1967
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Krutilla: Conservation Reconsidered Let us consider an area with some unique attribute of nature – a geomorpological feature such as the Grand Canyon, a threatened species, or biotic community essential to the survival of the threatened species. Let us assume further that the area can be used for certain recreation and/or scientific research activities which would be compatible with the perseveration of the natural environmental, or for extractive activities such as logging or hydraulic mining, which would have adverse consequences for scenic landscapes and wildlife habitat. - A private resource owner would consider the discounted expected net income stream from the alternative uses and select the use which would hold prospects for the higher present net value. Will the Market Allocate Resources Efficiently? No – even with perfectly discriminative pricing Existence values: when the existence of a grand scenic wonder or a unique and fragile ecosystem is involved its preservation and continued availability are a significant part of the real income of many individuals. - No behavioral trace…
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Total Economic Value Use Value : The direct and indirect value of access to resources to each household. Direct use : Direct impact on individual. Example: Indirect use : Incorporates ecologists’ concepts of damage to ecological functions (e.g., watersheds, carbon dioxide sequestration). Example: Option value : willingness to pay to preserve the option that the resource will be available for future use. Like an insurance premium for something, the availability of which would otherwise be uncertain. Example: (Personal) Non-Use Value Altruistic value (vicarious consumption): the value that households place on the consumption of good by others. Example: Bequest value (preservation): the value that the present generation places on the availability of a resource for future generations.
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