CENTRAL UNIVERSITY OF KASHMIR

KNOWLEDGE IS POWER

Topic: The Environmental Valuation- A Methodological Issue

Submitted By: Adil yousf mir

Enrollment no.: 1905CUKMR 03

Course Title: Environmental Economics

Submitted To: Dr. Khursheed Hussain

 INTRODUCTION

.Environmental Valuation refers to assignment of money values

to non- market assets, goods and services, where the money
value have a particular and precise meaning.

• A good or service is said to have an economic value if it

positively contribute to human wellbeing.

• Environmental values are measured in monetary terms through

the concept of individual’s willingness to pay (WTP) or
willingness to accept (WTA) compensation to alteration.

• Thus Environmental valuation is concerned with putting values

to natural resources.
 The Environmental Valuation- A
Methodological Issue

• Economists use willingness to pay as the standard measuring stick of

benefits in economics. Willingness to pay (WTP) is measured by the
demand price at margin. It can be explained by the following figure;

P1

O
FIG. A Pe 10 20

Q
Cont.…
• For the goods where market exists individuals exercise choice by
comparing their WTP with price of product under consideration.
Suppose if Pe is the equilibrium price and consumers WTP is measured
at P1, then all those consumers whose WTP is presented by P1 will
decide to purchase goods and services.

• Hence, decision making on the basis of willingness to pay must reflect

the individuals preferences for the goods.

 To understand the concept of willingness to pay (WTP) more clearly, we

would assume a specific project under consideration aim, government
mandate to control the sulphur emissions from electric power plant
located in a certain region of a nation. So benefits are improve air
quality.
 Benefits measured by using WTP
So benefits of this nature are measured by using WTP concept once it is realized
that the Marginal Damage Cost curve (MDC) actually represents the demand curve
for quality environment. This can be shown by the following figure;

P1 A

Price ($)
B
P2
D=MDC

FIG. B Q* Q1 Q2
Air Quality Measured

Suppose point ‘A’ on the demand curve represents the situation that
prevailed before the project was initiated. Moving from origin towards
right signals, improvement in the environment quality.
 From figure B, it is obvious that area under the curve
Q1ACQ2, represents total benefits, which represents the
societies total WTP for moving from initial point ‘A’ to ‘C’.
The total benefits derived is subjected to various
interpretations.

 The measure willingness to accept (WTA) considering WTP =

WTA, means people value gains and losses equally. If
people do not infact do this, if they weigh losses more
heavily than gains, there may be higher value on pressuring
the environmental amenities than the economic estimate
based purely on WTP would indicate.
 Silent Points About the
Methodology of Valuation

• Valuation of environment is based on human preferences

alone and it is assumed that all aspects of environmental
damage can be valued in monetary terms.
• The estimates of benefits is not time specific. This
approach either assumes perfect foresight or simply
neglects to address the uncertainty involved in
environmental damage.
• It is assumed that the changes in environmental quality ,
such as move from A to C are reasonably small.
• Reference
• principles of ENVIRONMENTAL ECONOMICS [Ahmed M
Hussen]

THANKS