Chapter09 - -1-1Chapter 9Valuation of Environmental...

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Unformatted text preview: -1-1Chapter 9Valuation of Environmental BenefitsContents: General OverviewTypes of BenefitsConcepts in Benefits MeasurementUncertainty, Expected Benefits, and Risk AversionMethodologies for Benefits ValuationGeneral OverviewThere are many types of benefits provided by environmental resources:• Individuals derive benefits from using natural resources as areas to relax orrecreate, to swim, hike, fish, water ski, windsurf, or bird watch.• Individuals also derive benefits from natural resources that are not related to thedirect use of the resource. For example, many people value the survival ofendangered species such as whales, spotted owls, and eagles even though theynever expect to see one.Natural and environmental resources are assets that provide a variety of serviceflows, which often fail to be valued in conventional markets. Benefits, which are notreflected in market prices, are known as “non-market benefits.” A considerable literaturehas grown on the valuation of non-market benefits. The measurement of non-marketbenefits relies on several concepts we will discuss:• An individual willingness to pay to preserve natural resource systems• Willingness to accept for preservation of privately-owned resources• The effect of uncertainty and risk aversionThere are also several methods that are often used to value non-marketbenefits:• First, wherever possible, market values can be used for valuing environmentalresources that are traded directly in markets.• Second, it may be possible to impute market values for environmental resourcesattached to goods, which are traded in markets. This is often referred to as thetechnique ofHedonic Pricing. For example, property values in certain areasmight capitalize air and water quality into housing prices.-2-2• Third, there are Travel Cost Models, which infer resource values based on theopportunity cost of time and travel to visit areas such as Yosemite Park.• Fourth, there are Engineering and Agronomical Cost Methods,whichcalculate value based on the cost of restoring a developed natural resource.• The final major methodology is the Interviewing Technique. The interviewingtechnique, or Contingent Valuation Method (CVM), elicits non-market valuesby asking people directly to state their valuation of a resource.Types of BenefitsUse BenefitsUse Benefits refer to the utility arising from direct or indirect physical use of aresource including commercial use, recreational use, and aesthetic use. There are twosubcategories of use benefits:1)Consumptive Use Benefitsare private benefits that are derived from resourceConsumption and contribute to resource depletion. Examples are farming,forestry, fishing, grazing, hunting, mining....
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Chapter09 - -1-1Chapter 9Valuation of Environmental...

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