Objectives of this Chapter
As discussed in Chapter 3, a good can be scarce, and thus have positive economic value,
even if there is not a direct market for it.
When there is no direct market for a good, such as
visiting a beach, breathing clean air, or hiking in a wilderness area, economists use
methods -- methods specifically to estimate the value that people have for goods that
are not traded in markets.
This chapter examines one set of methods, the revealed preference
approaches to valuation of environmental goods.
methods use actual
behavior to identify how people make tradeoffs among goods:
that is, people reveal their
preferences for nonmarketed goods by their choices for related marketed goods.
chapter will introduce you to
methods, methods based on what people say
instead of what they do.)
This chapter will teach you about:
Use values associated with nonmarket goods
An aside on regression analysis
estimating recreational demand from visitation data
estimating environmental benefits from property values or wages
estimating willingness to pay for avoiding environmental damages.
New Bedford Harbor Superfund Site
The National Oceanographic and Atmospheric Administration (NOAA) of the U.S.
Department of Commerce provides the following background:
New Bedford Harbor is a major commercial fishing port and industrial center in
southeastern Massachusetts on Buzzards Bay. From the 1940s to the 1970s, electrical
parts manufacturers discharged wastes containing PCBs and toxic metals into New
Bedford Harbor, resulting in high levels of contamination throughout the waters,
sediments and biota of the Harbor and parts of Buzzards Bay. Hundreds of acres of
marine sediment were highly contaminated. One location contained the highest
concentrations of PCBs ever documented in a marine environment.
Biological effects of the contamination include reproductive impairment and death of
marine life throughout the estuary, along with loss of marine biodiversity in areas of high
contamination. The economic impact was severe, due to long-term fishing closures, lost
beach use, diminished property values, and reduced opportunities for coastal
The Comprehensive Environmental Response, Compensation, and Liability Act
(CERCLA, also known as the Superfund law) allows the U.S. and the states to sue those
responsible for hazardous waste sites for “natural resource damages.”
The New Bedford case
was the first time that NOAA sought money not only to clean up the site, but also to offset
natural resources damages.
The 5 companies that were found to be responsible for the damages
to New Bedford Harbor paid $110 million.
Of that total, the amount attributed to damages to