The Economic Valuation of the Environment and Public Policy

The Economic Valuation of the Environment and Public Policy

A Hedonic Approach

New Horizons in Environmental Economics series

Noboru Hidano

The importance of the hedonic valuation approach in public policy evaluation and environmental value estimation is now widely accepted. This book is especially designed to illustrate the basic assumptions of the hedonic approach and highlight the strengths and weaknesses associated with it. Combining rigorous theoretical analysis, detailed empirical studies and an extensive history of hedonic valuation, the book is both a good introductory text to the field and a precise yet comprehensive aid for professionals and practitioners alike.

Chapter 4: Hedonic Measure as an Approximation of Benefit

Noboru Hidano

Subjects: environment, environmental sociology, politics and public policy, public policy


4. Hedonic measure as an approximation of benefit INTRODUCTION As we discussed in the last chapter, the overestimation theorem is strong, especially with relation to the equality conditions of Kanemoto’s theorem. This suggests a broader applicability of the hedonic measure based upon cross-sectional capitalization. But unfortunately, even in the Cobb–Douglas specification, we cannot obtain clear results on the level of overestimation when we use the hedonic measure as an index of gross benefits of the projects. More precisely it is not clear to what extent we can apply the hedonic measure as an approximation of the real gross benefit when we evaluate the benefits of large-scale projects in space and in a degree of improvement. We shall examine this question by adopting the following measure: B/(C ϩV ). (4.1) This ratio shows the approximation of the hedonic measure to estimate the exact gross benefit. If it is close to unity then capitalization is mostly achieved. As far as the practical cost–benefit analysis is concerned, a ratio of less than 1.2 or 1.3, though not unity, still makes sense, since benefit figures estimated in conventional environmental studies sometimes differ by more than two or three times. EXAMINATION OF OVERESTIMATION RATIO The existing literature shows that marginal improvements can be measured but fails to identify how large projects can be measured by these methods quantitatively. We introduced two criteria to measure 29 30 The economic valuation of the environment and public...

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