Chapter 7 - Berck _ Helfand

Chapter 7 - Berck _ Helfand - Chapter 7 Method Stated...

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Chapter 7. Stated Preference: The Contingent Valuation Method Objectives of this Chapter Chapter 6 discussed one set of nonmarket valuation methods, those that rely on revealed preferences. Those methods require that the environmental good be connected to a marketed good; a consumer’s response to that marketed good provides a signal about the environmental good. For many environmental goods, though, there may not be a connection to a market good. Many people express great concern about protecting endangered species and their habitats without ever seeing the species or visiting the area; many people who live outside the tropics and don’t travel to the region want to protect tropical rainforests. This chapter examines how economists analyze these values. In particular, you will learn about: Non-use (also known as passive-use) values of environmental goods The contingent valuation method to estimate values for environmental goods Objections and responses to “assigning price tags” to the environment The Exxon Valdez and Prince William Sound Prince William Sound is located in southern Alaska, east of Anchorage. Surrounded by the Chugach Mountains, it contains spectacular scenery, diverse habitats, glaciers, and tremendous variety of wildlife, both terrestrial and marine, that attract tourists who take cruises through the area to see wildlife and glaciers. Prince William Sound also contains the port of Valdez, the southern end of a pipeline that carries oil from Prudhoe Bay, in northern Alaska. At the port of Valdez, the oil is transferred to tankers that then take it to the lower 48 states. On March 24, 1989, a tanker called the Exxon Valdez hit a reef in Prince William Sound; the result was a spill of 11 million gallons of oil, the largest tanker spill to occur in the U.S. The oil coated beaches along the sound as well as many animals, resulting in the deaths of sea otters, birds, seals, killer whales, and fish eggs. The State of Alaska and the U.S. government not only required Exxon to clean up the spill (which cost them over $2 billion), but they also sued for natural resource damages. What were those damages, and how were they to be calculated? Certainly the fishing and tourism industries were hurt substantially by the spill, but were those the only effects? People around the country and the world watched the pictures of the spill; did they have a stake in the outcome? We have previously discussed “arm chair environmentalism.” In this chapter we will examine the values of “arm chair environmentalists” more closely, and we will examine the means economists use to measure them in monetary terms. We begin by discussing these “non- use” values in more detail. Non-Use Values of Environmental Goods Chapter 6 discussed the use values associated with environmental goods. In many cases, though, people care deeply about environmental goods even when they intend to make no use of them. In some cases there may be a behavioral trace – for instance, people may write letters to
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  • Winter '08
  • helfand
  • Economics, Exxon Valdez oil spill, Contingent valuation

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