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Economic Theory for the Environment

Economic Theory for the Environment

Essays in Honour of Karl-Göran Mäler

New Horizons in Environmental Economics series

Edited by Bengt Kriström, Partha Dasgupta and Karl-Gustaf Löfgren

Karl-Göran Mäler’s work has been a mainstay of the frontiers of environmental economics for more than three decades. This outstanding book, in his honour, assembles some of the best minds in the economics profession to confront and resolve many of the problems affecting the husbandry of our national environments.

Chapter 13: Real versus Hypothetical Willingness to Accept: The Bishop and Heberlein Model Revisited

Chuan-Zhong Li, Karl-Gustaf Löfgren and W. Michael Hanemann

Subjects: economics and finance, environmental economics, environment, environmental economics

Extract

13. Real versus hypothetical willingness to accept: the Bishop and Heberlein model revisited Chuan-Zhong Li, Karl-Gustaf Löfgren and W. Michael Hanemann 1 INTRODUCTION Economists have long been concerned with the measurement of environmental benefits in order to make social cost–benefit analyses on which to base more informed policy decisions. Since environmental goods and services are in general not traded in any marketplace, there is no price information directly available to infer their values. This has led economists to develop techniques such as travel cost analysis (Clawson and Knetsch, 1966; Mäler et al., 1994) and hedonic pricing (Rosen, 1974) to impute their value from transactions of other goods and services. An alternative approach is to construct markets as if environmental amenities could be bought and sold, and directly ask for people’s willingness to pay (WTP) or willingness to accept (WTA) for proposed changes on the environmental amenities1 (Mitchell and Carson, 1989). Since the elicited valuation data are contingent upon the particular market scenario constructed, the approach became known as the contingent valuation (CV) method. Compared to other approaches based on revealed preferences, the CV method has an advantage in its flexibility to construct market scenarios that can extend beyond the range of observed market behavior and, therefore, it can even capture existence values that are not intimately associated with the consumption of other goods or services. However, the method may be subject to various sources of bias depending upon the design and implementation of the survey procedure and...

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