Environmental

Management
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Assessing Benefits for

Environmental Decision
Making
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Environmental Benefits Conceptual Issues

✘ Environmental benefits measure damage

reductions
✘ Policy brings about changes in these
damage reductions, and these changes are
referred to as incremental benefits
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Incremental benefits

✘ are the reduction in health, ecological, and

property damages associated with an
environmental policy initiative
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Types of Incremental Benefits

Primary Environmental Secondary environmental
Benefits benefits
-Damage-reducing effects -Indirect gains to society that
that are a direct may arise from a stimulative
consequence of effect of primary benefits or
implementing from a demand-induced effect
environmental policy to implement policy
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Conceptually Valuing
Environmental Benefits
Environmental quality is a public,
nonmarketed good
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TWO SOURCES OF VALUE

User Value Existence Value

- Benefits derived -Benefit received from
form physical use or the continuance of an
access to an environmental good.
environmental good
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User Value
Direct User Value Indirect User Value
- Benefits derived - Benefit derived from
from physical use or indirect consumption of
access to an an environmental good.
environmental good
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Existence Value
In a text about valuing public
goods, Mitchell and Carson
(1989) classify the motives for
existence value as :
- Vicarious Consumption
- Stewardship
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Vicarious Consumption

✘ The utility associated with knowing that

other derived benefits from an environment
goods.
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Stewardship

✘ The sense of obligation to preserve the

environment for future generation.
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Approaches to Measuring
Benefits
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Two Major Approaches

✘ Physical Linkage
Approach
✘ Behavioral
Linkage Approach
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Physical Linkage Approach

Estimates benefits based upon
a technical relationship
between environmental
resource and user of resource
 Damage Function Method
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Damage Function Method

- models the relationship between a

contaminant and its observed effects as a
way to estimate damage reductions arising
from policy.
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Assessing the Damage Function

Method

✘ Estimates only one aspect of incremental benefits

✘ Not capable of simultaneously monetizing the benefits it
quantifies
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Applications of the Damage

Function Method

✘ Typically used for

measuring a specific
type of incremental
benefit.
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Estimation Under the Physical Linkage Approach

Figure 1 . Measuring Incremental Benefits Using the Damage Function Method, A
Physical Linkage Approach

our
our office
office
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Behavioral Linkage
Approach

Estimates benefits using

observations of behavior
in actual markets or
survey responses about
hypothetical markets
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Direct Estimation Methods Under

the Behavioral Linkage Approach
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Contingent Valuation
Method (CVM)

– uses surveys to elicit

responses about WTP for
environmental quality
based on hypothetical
market conditions
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Applications of the CVM

✘Estimation of the value of a
statistical human life
✘Measuring society’s WTP for water
quality improvements
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Indirect Estimation Methods Under

the Behavioral Linkage Approach
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INDIRECT METHODS OF
BEHAVIORAL LINKAGE
APPROACH

✘ Averting expenditure
method (AEM)
✘ Travel cost method
(TCM)
✘ Hedonic price method
(HPM)
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Averting Expenditure Method (AEM)

✘ Assesses changes in an individual’s

spending on goods and services that are
substitutes for personal environmental
quality to assign value to changes in the
overall environment.
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Averting Expenditure Method (AEM)

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Assessing the AEM

A drawback of the AEM arises from the

phenomenon known as jointness of production.
This refers to the fact that some averting
expenditures yield benefits beyond those associated
with a cleaner environment.
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Travel Cost Method

Values a change in the quality of
an environmental resource
by assessing the effect of that
change on the demand for a
complementary good.
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Assessing the TCM

✘ Estimates only user value
✘ Addresses only recreational use (i.e., not useful for estimating
commercial benefits
✘ Estimates are biased downward if access to site is congested
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Hedonic Price Method (HPM)

✘ Uses the theory that a good is valued for the
attributes it possesses to estimate the implicit
or hedonic price of an environmental attribute
and identify its demand as a means to assign
value to policy-driven improvements in
quality.
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Assessing the HPM

The appeal of the HPM is that it is highly intuitive. It
approaches the problem of monetizing incremental
benefits in a logical way, directly using market prices.
Its major disadvantage is that it requires a fairly
complicated empirical model.
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