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Unformatted text preview: Environmental Economics (AEM 4510/ECON 4090) Solutions to Assignment #3 1. ( 5 points ) (a) Commercial Fishing. This is the most direct, measurable type of use value. After the spill, the commercial fleet cannot operate for a period while the water and the stock of fish recover. Their lost profits represent direct damages from the spill. (b) Recreational fishing and other boating. There presumably are others who enjoy fishing or boating off the same coast, but do not do so primarily for profit. They are also damaged, as the recreational value from this activity is unavailable. This should be considered recreational use value. (c) Beach goers. This group suffers damage of the same type: lost recreational use value. These folks include swimmers, surfers, sunbathers, tide-pool explorers, and anyone else who would enjoy spending time along the effected coast. (d) Locals with concern for health of affected species and ecosystems. Even if the coast eventually recovers completely, the spill causes damage to marine species, with effects on birds and other parts of the local ecosystem. Many people have real value for the existence of this wildlife, even individual animals. They may sometimes go to observe it, but this is not necessary for the value to be genuine. (e) Others (anywhere in the world) with existence value for biodiversity and ecosystem health, including those with altruistic value for the other groups listed. People living outside the effected area could have the same type of concern for the environmental health of coastal France, and could ”feel the pain” of those directly damaged. The first three represent types of use value. The more difficult element of damage to describe and measure in a case like this is from non-use value. The last two groups derive non-use value from the condition of the French coast. The last group may also be classified as having altruistic value. 2. ( 5 points ) Figure 1 below shows the relationship between pollution and monthly rents. Rent is lower in the areas with greater pollution. Figure 2 represents the change in rent associated with an additional unit of pollution, for different levels pollution. This is the hedonic price function. Because pollution is a bad, this line lies in the negative quadrant....
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- Spring '08