Chapter 6 - Berck _ Helfand

Chapter 6 - Berck _ Helfand - 12/23/2014 Lecture 5...

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Chapter 6. Revealed Preference 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 nonmarket valuation 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. Revealed preference 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. (The next chapter will introduce you to stated preference 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 Travel Cost: estimating recreational demand from visitation data Hedonic Pricing: estimating environmental benefits from property values or wages Averting Behavior: 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 development. 1 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 1 http://www.darp.noaa.gov/northeast/new_bedford/index.html Chapter 6 1
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beach recreation and to fishing was $20.2 million. The larger share of the funds was the cost of remediation, which is the cost to prevent further damage.
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This note was uploaded on 03/03/2009 for the course ECON 370 taught by Professor Helfand during the Winter '08 term at University of Michigan.

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Chapter 6 - Berck _ Helfand - 12/23/2014 Lecture 5...

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