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Berck+Ch+6 - Chapter 6 Revealed Preference What are the...

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1 Chapter 6. Revealed Preference What are the benefits associated with environmental goods? Estimating benefits requires understanding of the tradeoffs that people are willing to make for a good. Demand curves reflect those tradeoffs for marketed goods, and watching how people respond to market changes provides informatin about those demand curves. Environmental goods, though, are not typically allocated via markets. When there is no market for a good, such as visiting a beach, breathing clean air, or hiking in a wilderness area, economists use nonmark e t valuation methods-- methods to estimate the value that people have for goods that are not traded in markets. The tools of Chapter 5 provide estimates of benefits, once we have information on consumer demand; nonmarket valuation methods estimate that demand. This chapter examines a set of methods called the revealed preference approaches to valuation of environmental goods. R e v e al e d pr e f e r e n ce 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 s tat e d pr e f e r e n ce methods, methods based on what people say instead of what they do.) This chapter will examine: Use values associated with nonmarket goods: the benefits of using environmental goods. An aside on regression analysis: an overview of a statistical method for organizing and analyzing data. Travel Cost: estimating recreational demand from visitation data. Hedonic Pricing: estimating environmental benefits from property values or wages. “Hedonic” refers to the idea that each good has several attributes, and that people place a value on each attribute.
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2 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.
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