Transcript Methods for Measuring Non

Economics 101:
How to Measure Indirect Values
Benjamin S. Rashford
Agricultural and Applied Economics
University of Wyoming
What is Value?
The economic concept of value determined by
peoples willingness to make tradeoffs…
$
Consumer
Marginal Cost
Surplus
P*
Producer
Surplus
Willingness to Pay
Quantity
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
housing price
• people value the characteristics of goods
air quality
People are willing to pay more for houses in areas
with higher environmental quality
Methods for Measuring Non-Market Values:
Indirect Methods
Hedonic Pricing Method (applied to wages)
Income ($CN in 2000)
$33-$17k
$17-$22k
$27-$54k
$3-$13k
$27-$54k
People may be willing to accept lower wages in
areas with abundant ecosystem services
Methods for Measuring Non-Market Values:
Indirect Methods
Hedonic Pricing Method
Application to forage land:
•
Scenic amenities
•
Environmental quality (wildlife habitat, water,…)
•
Access to recreation
Methods for Measuring Non-Market Values:
Indirect Methods
Hedonic Pricing Method
Advantages:
•
Publicly available data
•
Low cost
Disadvantages:
•
Large data sets
•
Sophisticated statistical models
Methods for Measuring Non-Market Values:
Indirect Methods
Travel Cost Method
•
Measures the value of resources associated
with recreation
Methods for Measuring Non-Market Values:
Indirect Methods
Travel Cost Method
1.
Ask visitors about their
Estimated demand
of trips
2.
Estimate recreation
travel cost
travel cost and number
demand  consumer
surplus
trips
Value of recreation
Methods for Measuring Non-Market Values:
Indirect Methods
Travel Cost Method
3.
Demand with
high quality
Estimate demand for
higher quality resources
4.
Non-market value = the
additional surplus
travel cost
alternative site with
Non-market Value
Demand with
low quality
trips
Methods for Measuring Non-Market Values:
Indirect Methods
Travel Cost Method
Advantages:
•
Can be very specific (value or site)
Disadvantages:
•
Primary data collection ($ and time consuming)
•
Sophisticated statistical models
Methods for Measuring Non-Market Values:
Direct Methods
Contingent Valuation
Conjoint Analysis
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?
Elicit values by directly asking people to state
their willingness to pay for a non-market good
Methods for Measuring Non-Market Values:
Direct Methods
Contingent Valuation
Conjoint Analysis
Select between alternative
sets of characteristics
Hunting trip A
Hunting trip B
1. Water level is below the
vegetation line
1. Water level is above the
vegetation line
2. You see 2 ducks per hour
2. You see 6 ducks per hour
3. Entrance fee = $5
3. Entrance fee = $11
Elicit values by directly asking people to state
their willingness to pay for a non-market good
Methods for Measuring Non-Market Values:
Direct Methods
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
Methods for Measuring Non-Market Values:
Benefits Transfer
Challenges:
•
Past studies must exist
•
Activities, locations and populations must
correspond
Methods for Measuring Non-Market Values:
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