Download ppt - Economics 101: How to Measure Indirect Values Benjamin S. Rashford Agricultural and Applied Economics University of Wyoming

Economics 101:How to Measure Indirect Values

Benjamin S. RashfordAgricultural and Applied Economics

University of Wyoming

What is Value?

The economic concept of value determined by

peoples willingness to make tradeoffs…

$

Quantity

P* Producer

Surplus

Consumer

Surplus

Willingness to Pay

Marginal Cost

Defining Non-market Values

Use Value:

Values associated with the tangible use of

non-market goods and services (e.g.

recreation, health benefits of clean air…)

Defining Non-market Values

Non-use (“passive”) Value:

Intrinsic values that are independent of use

• Existence (“preservation”) Value

• Bequest Value

• Altruistic Value

• Option Value

Methods for Measuring Non-Market Values

Indirect Methods (revealed preference)

Examine the market decisions people make

regarding activities that are linked to non-

market goods and services

Direct Methods (stated preference)

Elicit values directly from people using

survey methods

Methods for Measuring Non-Market Values:Indirect Methods

Hedonic Pricing Method

• people value the characteristics of goods

air quality

hous

ing

pric

e

People are willing to pay more for houses in areas with higher environmental quality

Hedonic Pricing Method (applied to wages)

People may be willing to accept lower wages in areas

with abundant ecosystem services


Income ($CN in 2000)

$27-$54k

$17-$22k

$3-$13k

$27-$54k

$33-$17k



Application to forage land:

•Scenic amenities

•Environmental quality (wildlife habitat, water,

…)

•Access to recreation



Advantages:

•Publicly available data

•Low cost

Disadvantages:

•Large data sets

•Sophisticated statistical models


Travel Cost Method

• Measures the value of resources associated

with recreation


Travel Cost Method

1. Ask visitors about their

travel cost and number

of trips

2. Estimate recreation

demand consumer

surplustrips

trav

el c

ost

Estimated demand

Value of recreation


Travel Cost Method

3. Estimate demand for

alternative site with

higher quality resources

4. Non-market value = the

additional surplus

trips

trav

el c

ost

Demand with low quality

Demand with high quality

Non-market Value


Travel Cost Method

Advantages:

•Can be very specific (value or site)

Disadvantages:

•Primary data collection ($ and time

consuming)

•Sophisticated statistical models

Methods for Measuring Non-Market Values:Direct Methods

Contingent Valuation Conjoint Analysis

Elicit values by directly asking people to state

their willingness to pay for a non-market good

WTP for a change in quality

“Waterfowl habitat in ABC Census Division is currently highly degraded due to intensive row crop production. Waterfowl habitat could be enhanced by converting cropland to forage production. If 20% of the land were converted, waterfowl populations would increase by 1%. Would you be willing to pay an additional $10 per year in property taxes if the money was used to convert cropland to forage for the purpose of improving waterfowl habitat?


Contingent Valuation Conjoint Analysis

Elicit values by directly asking people to state

their willingness to pay for a non-market good

Select between alternative sets of characteristics

Hunting trip A

1. Water level is below the vegetation line

2. You see 2 ducks per hour

3. Entrance fee = $5

Hunting trip B

1. Water level is above the vegetation line

2. You see 6 ducks per hour

3. Entrance fee = $11


Contingent Valuation and Conjoint Analysis

Advantages:

•Can measure non-use values

•No secondary data required

Disadvantages:

•Survey design

•Survey cost and time

•Stated vs. revealed preference

Methods for Measuring Non-Market Values:

Benefits Transfer

Uses the values estimated from existing studies

Value of waterfowl hunting

Study Region Time Frame Consumer Surplus/Trip

Cooper California 1989 $11.39 – $32.26

Hammack & Brown

Pacific Flyway

1972 $36 - $103.03

Van Kooten Alberta 1993 $23.65

Benefits Transfer

Challenges:

•Past studies must exist

•Activities, locations and populations must

correspond


Conclusions:

•Valuing non-market goods is hard

•Detailed studies can be expensive and

time consuming

•Benefits transfer (if possible) can provide a

policy relevant estimate for less time and

money
