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slides_2 - New Topic: Measuring The Demand for the...

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1 New Topic: Measuring The Demand for the Environment: • Why must we do this? • Why would such estimates be useful? • Non-market goods • Can we just ask people?
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2 Valuation Methods in Environmental Economics • Consider a market good such as a Starbucks Coffee • Suppose that you see Matt buy a coffee on a Tuesday when the price is $2 • Suppose that the next Tuesday, you see that Matt buys no coffee at Starbucks when the market price is $4 • You immediately have learned that Matt’s willingness to pay for Starbucks coffee is between $2 and $4. You have bounded his demand function for coffee through simple revealed preference.
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Demand “Theory” Price Quantity
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4 The Challenge • Clean air, clean water, the absence of climate change, protection of ecosystems are all examples of environmental “goods” for which there is no explicit market to study how people value them • So what? Without valuation estimates, how do we determine what are the benefits to society of protecting Clean Air through the Clean Air Act?
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5 Four Methods for valuing non- market environmental goods • 1. Public health approach (see chapter 2 of Green Cities) • 2. offsetting approach • 3. hedonic, real estate approach (see chapter 2 of green cities) • 4. Contingent Valuation
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6 • All people seek to have a long, healthy and happy life. Air pollution is threat to all three of these goals. Air pollution raises mortality rates, raises morbidity rates and through making a city’s outdoors less pleasant lowers quality of life. Air quality is a strange good. If we want a cup of coffee we can make it ourselves or go to Starbucks. • But, how do you express your demand for clean air? You could move to a clean city. Or in a dirty city, you could move to its cleanest part.
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7 Health Production (HP)Approach • The HP approach yields an estimate of the excess morbidity and mortality caused by air pollution. Excess morbidity and mortality are measured in probability units (i.e you are 3 percentage points more likely to get sick and .02 percentage points more likely to die if you live in a high pollution city versus a low pollution city)
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8 Health Production Functions • Suppose that Pittsburgh residents suffer more health problems in 2003 than in 1993 and that they are also sicker than residents of roughly similar cities such as Cleveland or Baltimore. Suppose further that Pittsburgh residents are the same age and ethnicity as residents of these other cities and that their diet, exercise, and smoking habits are all roughly comparable. In this case, a public health
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slides_2 - New Topic: Measuring The Demand for the...

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